A South Korean brokerage firm's earnings "missed expectations" caused SK Hynix to plunge 12%, dragging down the entire memory sector.
- Core Viewpoint: South Korean brokerage KIS lowered its Q2 earnings forecast for SK Hynix, triggering a sharp stock price decline. The primary reason is not a worsening of fundamentals, but rather its excessively high HBM (High Bandwidth Memory) revenue share and price lock-in from long-term contracts, leading to average selling price growth below market expectations. However, the logic of long-term earnings sustainability remains unchanged.
- Key Elements:
- KIS predicts SK Hynix's Q2 operating profit to be approximately 60.4 trillion won, about 8% lower than the market consensus of 65 trillion won, directly causing the stock price to fall over 10% in a single day, a 33% retreat from its historical high.
- Core reason for the profit miss: Due to price locks in long-term contracts (LTAs), HBM failed to fully capture the spot price increase benefits of DRAM (average price up 30%) and NAND (average price up 50%) during the same period.
- KIS stated the lowered forecast is solely a correction of LTA price assumptions, not a concern about business performance, and maintained its target price of 3.8 million won with an "Overweight" rating, forecasting Q2 2026 operating profit margin to reach a record high of 74.6%.
- Fragile market sentiment, coupled with cash-out from SK Hynix's US ADR listing, intensified selling pressure, which cascaded to Hong Kong-listed leveraged ETFs (dropping over 22% in a single day) and A-share memory concept stocks.
- Industry Trend: As LTA contract structures extend to 3-5 years, the core valuation driver shifts from single-quarter ASP growth to earnings sustainability. A higher revenue share from contracts will reduce earnings volatility.
Original Author: 龙玥
Original Source: Wall Street News
On July 13, South Korean local brokerage KIS released an earnings forecast for SK Hynix's second quarter. KIS predicts SK Hynix's Q2 revenue to be 80.9 trillion Korean won, up 54% quarter-on-quarter and surging 264% year-on-year; operating profit is forecast at 60.4 trillion Korean won, up 61% quarter-on-quarter and 556% year-on-year.
The numbers look impressive, but here's the catch: The market consensus estimate was 65 trillion Korean won. KIS's forecast came in about 8% below the consensus.
This discrepancy directly ignited the market.
After the South Korean stock market opened, SK Hynix's stock price quickly plummeted over 10%, breaking below the 2 million won mark, and retracing 33% from its all-time high on June 25 in just three weeks.
High HBM Proportion Actually Drags Down ASP
KIS explained in its report the core reason for the profit miss: SK Hynix's HBM (High Bandwidth Memory) revenue proportion is higher than its peers, and its shipment share is relatively high, leading its average selling price (ASP) growth to lag behind the market average.
This logic seems counterintuitive at first glance—HBM is a high-end product. Shouldn't a higher proportion mean more profit?
The key lies in the pricing structure. HBM prices are typically locked in via long-term supply agreements (LTAs), making contract prices relatively fixed and unlikely to rise sharply with market fluctuations in the short term. In contrast, regular DRAM and NAND have higher price elasticity in the spot market, meaning their ASP growth tends to be greater when the overall market prices increase.
SK Hynix's higher HBM proportion means it has benefited less from the price appreciation dividends in this round of rising market average prices compared to its peers.
During the same period, the average spot prices of regular DRAM and NAND continued to surge—KIS predicts Q2 DRAM average prices will rise around 30% quarter-on-quarter, and NAND by about 50%—but SK Hynix's overall ASP growth was held back by the contract prices of HBM.
Downgrade Stemmed from LTA Recalculation, Not Fundamental Deterioration
KIS clearly stated in its report that this downgrade is not due to performance concerns, but rather a correction resulting from incorporating price assumptions of already signed long-term supply agreements (LTAs) into the forecast.
The report's original wording states: "This is a result of incorporating signed LTAs into price assumptions and realistically adjusting the forecast, not a concern about performance."
KIS also lowered its operating profit forecasts for 2026 and 2027, approximately 9% and 11% lower than previous estimates respectively. However, the brokerage emphasized that as HBM4 officially begins mass shipments from the third quarter onwards, the rising market average price will drive up overall ASP. At that point, SK Hynix's ASP growth is expected to return to the market average level.
KIS predicts that the Q2 2026 operating profit margin will reach 74.6%, an all-time high, and continue to rise quarter by quarter thereafter.
The brokerage maintains its target price of 3.8 million won and an overweight rating, believing that this forecast downgrade is merely a short-term disturbance and does not change the medium-to-long-term upward earnings trend.
"A 556% Surge Yet Below Expectations": A Crack in Market Sentiment
A 556% year-on-year increase is an extremely strong figure in any industry. But the logic of the capital market is: What matters is not how much it has risen, but whether it meets expectations.
The market had already fully priced in the 65 trillion won consensus estimate. KIS's forecast was about 4.6 trillion won lower than this figure, effectively declaring that "expectations were too high."
This triggered two layers of concern: first, the direct impact of short-term earnings failing to meet expectations; second, whether the high proportion of HBM poses a structural risk—meaning the more SK Hynix bets on HBM, the more its ASP flexibility is constrained during the contract price lock-in period.
Compounding this, SK Hynix just debuted on the US stock market last Friday. Some funds that bet on the new listing chose to cash out after the ADR listing, further exacerbating the selling pressure.
Contagion Spreads: Hong Kong ETFs, A-Share Memory Stocks Tumble in Unison
SK Hynix's decline quickly transmitted to surrounding markets.
In Hong Kong stocks, the 2x Leveraged SK Hynix ETF fell over 22% in a single day, and the 2x Leveraged Samsung Electronics ETF dropped over 13%.
A-share memory concept stocks followed suit, with core names like GigaDevice, Ingenic Semiconductor, Longsys, and Biwin Storage falling over 7%.
However, from a broader macro perspective, the memory semiconductor sector has been in an adjustment phase for nearly the last half-month. Some individual stocks have already fallen over 20%, hitting the technical bear market threshold. Behind this are also factors like global funds rebalancing allocations within AI and across different markets, including a rotation logic of "selling chips, buying cloud," as well as the phased rebound in the Hong Kong stock market attracting capital back.
Brokerage: Long-term Thesis Unchanged, Focus on Profit Sustainability
Despite triggering market turmoil, KIS's overall stance in its report was not pessimistic.
The brokerage believes that as the memory industry shifts towards a 3-to-5 year LTA contract structure, the core driver of corporate valuation will transition from "single-quarter ASP growth" to "how long high profitability can sustain."
KIS's report states: "From now on, the focus needs to be on the sustainability of earnings. The expansion of LTAs is reducing the long-standing volatility of performance in the memory industry."
The brokerage expects that as the proportion of contract-based revenue increases and HBM capacity expansion squeezes overall supply, SK Hynix's high profitability levels will be maintained long-term, leading to a re-rating of its valuation.
The target price of 3.8 million won still implies significant upside from the current stock price. KIS maintains its overweight rating.
