Korean brokerage firm's earnings "miss" triggers 12% plunge in SK hynix, weighing on the entire memory sector.
- Core View: Korean brokerage KIS's downward revision of SK hynix's Q2 earnings expectations triggered a sharp stock price decline. The primary reason is not a fundamental deterioration, but rather its high revenue proportion from HBM. Long-term contract price locks have led to average selling price growth falling short of market expectations. However, the logic of long-term earnings sustainability remains unchanged.
- Key Elements:
- KIS forecasts SK hynix's Q2 operating profit at approximately 60.4 trillion won, about 8% below the market consensus of 65 trillion won, directly causing the stock to fall over 10% in a single day and a 33% correction from its historical high.
- The core reason for the profit miss: Due to fixed prices in long-term contracts (LTA) for HBM, the company 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 indicated the forecast cut is merely a correction of LTA price assumptions, not a performance concern, and maintained its target price of 3.8 million won and an overweight rating, forecasting Q2 2026 operating profit margin to reach a record high of 74.6%.
- Fragile market sentiment, coupled with fund cashing out after SK hynix's US ADR listing, intensified selling pressure, which spread to Hong Kong-listed leveraged ETFs (down 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. An increased revenue share from contracts will reduce earnings volatility.
Original Author: Long Yue
Original Source: Wall Street CN
On July 13, Korean local securities firm KIS released its Q2 earnings forecast report for SK Hynix. It is estimated that SK Hynix's Q2 revenue will reach 80.9 trillion Korean won, up 54% quarter-over-quarter and surging 264% year-over-year; operating profit is expected to be 60.4 trillion Korean won, up 61% quarter-over-quarter and 556% year-over-year.
The numbers look impressive, but the problem is: the market consensus expectation was 65 trillion Korean won, and KIS's forecast is about 8% below the consensus.
This deviation directly ignited the market.
After the opening of the Korean stock market, SK Hynix's stock price plummeted over 10%, breaking below the 2 million won mark. From its historical high on June 25, the stock has corrected 33% in just three weeks.
High HBM Share Drags on ASP
In its report, KIS explained the core reason for the profit shortfall against consensus: SK Hynix's HBM (High Bandwidth Memory) revenue share is higher than peers, and its shipment proportion is relatively high, causing 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 share mean more profit?
The key lies in the pricing structure. HBM prices are typically locked in via long-term supply agreements (LTAs). Contract prices are relatively fixed and do not adjust sharply with short-term market fluctuations. In contrast, prices for regular DRAM and NAND have higher elasticity in the spot market. When the overall market prices rise, these products see larger ASP gains.
SK Hynix's higher HBM share means it benefited less from the "price rally dividend" during this recent uptrend compared to its peers.
Meanwhile, the average spot prices for regular DRAM and NAND continued to soar—KIS forecasts that Q2 DRAM average prices will rise about 30% quarter-over-quarter, and NAND about 50%. However, Hynix's overall ASP growth was held back by HBM's contract prices.
Downgrade Due to LTA Re-Evaluation, Not Fundamental Deterioration
KIS explicitly noted in the report that this downgrade is not due to performance concerns, but rather a revision after incorporating the price assumptions of already-signed long-term supply agreements (LTAs) into the calculation.
The original report states: "This is a result of realistic adjustments to the forecast by incorporating signed LTA price assumptions, and is not a concern about performance."
KIS also lowered its operating profit forecasts for 2026 and 2027 by about 9% and 11% respectively compared to previous estimates. However, the brokerage emphasized that with the official mass production and shipment of HBM4 starting in the third quarter, the market average price uptrend will drive up overall ASP. At that point, SK Hynix's ASP growth is expected to return to market average levels.
KIS predicts that the Q2 2026 operating profit margin will reach 74.6%, setting a new historical high, and will continue to rise each subsequent quarter.
The brokerage maintains its target price of 3.8 million won and an "overweight" rating, believing that this forecast downgrade is only a short-term disturbance and does not change the medium-to-long-term upward performance trend.
"A 556% Surge Yet Below Expectations": Cracks in Market Sentiment
A 556% year-over-year increase is an extremely strong number in any industry. But the logic of the capital markets is: what matters is not how much it has risen, but whether it meets expectations.
The market had already fully priced in the consensus expectation of 65 trillion won. KIS's forecast was about 4.6 trillion won lower than this number, effectively declaring that "expectations were too high."
This triggered two layers of concern: first, the direct impact of short-term earnings falling short of expectations; second, whether the high HBM share constitutes a structural risk—meaning the more SK Hynix bets on HBM, the more limited its ASP flexibility becomes during the contract price lock-in period.
Compounding this, SK Hynix just listed on the US stock market last Friday. Some funds that had bet on the new listing chose to cash out after the ADR debut, further exacerbating the selling pressure.
Cascading Sell-off: Hong Kong ETFs and A-Share Memory Stocks Fall Simultaneously
SK Hynix's decline quickly spread to neighboring markets.
In Hong Kong, the 2x Long SK Hynix leveraged ETF fell over 22% in a single day, and the 2x Long Samsung Electronics ETF dropped over 13%.
A-share memory concept stocks also followed the downturn, with several core stocks like GigaDevice, Beijing Ingce, Longsys Electronics, and Biwin Storage falling over 7%.
However, from a broader perspective, the memory semiconductor sector has been in a correction phase for about half a month. Some individual stocks have fallen over 20%, touching the technical bear market line. Behind this are also factors such as global capital rebalancing allocations within AI and across different markets, including the rotation logic of "sell chips, buy cloud," as well as the phased rebound in the Hong Kong stock market attracting capital back.
Brokerages: Long-term Thesis Unchanged, Focus on Profitability Sustainability
Despite triggering market turbulence, KIS's overall stance in the report is not pessimistic.
The brokerage believes that as the memory industry shifts towards a 3-5 year LTA contract structure, the core driver of corporate valuation will transition from "single-quarter ASP growth" to "how long high profitability can be sustained."
The KIS report points out: "From now on, the focus needs to be on the sustainability of earnings. The expansion of LTAs is reducing the long-standing performance volatility in the memory industry."
The brokerage expects that with the increasing share of contract-based revenue and the overall supply squeeze from HBM capacity expansion, SK Hynix's high profitability levels will be maintained long-term, leading to a re-pricing of its valuation.
The target price of 3.8 million won still implies significant upside from the current stock price, and KIS maintains its "overweight" rating.
