Original Author: Long Yue

Original Source: Wall Street Journal

On July 13, South Korean local brokerage KIS released SK Hynix's second-quarter earnings forecast report. It is expected that SK Hynix's Q2 revenue will be 80.9 trillion Korean won, a quarter-on-quarter increase of 54%, and a year-on-year surge of 264%; operating profit is expected to be 60.4 trillion Korean won, a quarter-on-quarter growth of 61%, and a year-on-year growth of 556%.

The numbers look impressive, but the problem is: the market consensus expects 65 trillion Korean won, and KIS's forecast is about 8% lower than this consensus.

This deviation directly triggered a market explosion.

After the South Korean stock market opened, SK Hynix's stock price quickly dropped by more than 10%, falling below the 2 million won mark, with a decline of 33% from the historical high on June 25 within just three weeks.

High HBM Proportion Dragged Down ASP

KIS explained the core reason for the profit being below consensus in the report: SK Hynix's HBM (High Bandwidth Memory) revenue proportion is higher than its peers, and the shipment share is too high, leading to its average selling price (ASP) increase being lower than the market average level.

This logic seems abnormal at first glance—HBM is a high-end product, shouldn't a higher proportion mean making more money?

The key lies in the pricing structure. HBM is typically priced under long-term supply contracts (LTA), where the contract prices are relatively fixed and do not significantly rise in a short period with market trends. On the other hand, ordinary DRAM and NAND have higher price elasticity on the spot market, with ASPs rising even more when the overall market prices increase.

A high proportion of HBM for SK Hynix means that it gains less pricing benefits during this round of average market price increases compared to its peers.

Meanwhile, the spot average prices of ordinary DRAM and NAND were still soaring—KIS predicts that the Q2 DRAM average price will increase by about 30% quarter-on-quarter, and NAND will rise by about 50%—but Hynix's overall ASP growth was "held back" by the contract prices of HBM.

Downgrade from LTA Recalibration, Not Fundamental Deterioration

KIS explicitly pointed out in the report that this downgrade is not a concern over performance, but rather a correction result after incorporating the price assumptions of already signed long-term supply contracts (LTA) into the calculations.

The report stated: "This is the result of incorporating the signed LTA into price assumptions and adjusting forecasts to reflect reality, not a concern over performance."

KIS also downgraded the operating profit forecasts for 2026 and 2027, reducing them by about 9% and 11%, respectively. However, the brokerage emphasized that as HBM4 begins large-scale shipments in the third quarter, the upward trend in market average prices will drive the overall ASP higher, at which time SK Hynix's ASP growth will return to the market average level.

KIS predicts that the operating profit margin in Q2 2026 will reach 74.6%, setting a historical high, and will continue to rise each quarter.

The brokerage maintains a target price of 3.8 million won and a buy rating, believing that this forecast downgrade is merely a short-term disturbance and does not change the medium to long-term upward trend in performance.

"Surging 556% Yet Below Expectations": A Crack in Market Sentiment

A year-on-year growth of 556% is an extremely strong number in any industry. However, the logic in the capital market is: what matters is not how much it has risen, but whether it has met expectations.

The market had previously fully priced in the consensus expectation of 65 trillion Korean won. KIS's forecast is about 4.6 trillion won lower than this figure, equivalent to directly declaring that "expectations were too high."

This triggered two layers of concerns: first, the direct impact of the short-term performance being below expectations; second, whether the high proportion of HBM constitutes a structural risk—meaning that the more SK Hynix bets on HBM, the more limited its ASP elasticity becomes during the contract price lock-in period.

Moreover, SK Hynix had just listed on the US stock market last Friday, and funds that bet on "new listings" chose to cash out after the ADR listing, further intensifying selling pressure.

Ripple Effect: Hong Kong Stock ETF and A-share Storage Stocks Plunge Simultaneously

SK Hynix's decline quickly spread to surrounding markets.

In the Hong Kong stock market, the twice-leveraged ETF for SK Hynix dropped more than 22% in a single day, while the twice-leveraged ETF for Samsung Electronics fell over 13%.

A-share storage concept stocks also fell in tandem, with several core stocks such as Zhaoyi Innovation, Beijing Junzheng, Jiangbo Long, and Baiwei Storage seeing declines of over 7%.

However, from a more macro perspective, the storage semiconductor sector has entered an adjustment period over the past half month, with some stocks having dropped over 20%, reaching the technical bear market boundary. Behind this is the global rebalancing of funds within and between different markets due to AI, including the rotation logic of "sell chips, buy clouds," as well as the phase rebound of the Hong Kong stock market attracting fund inflows.

Brokerage: Long-term Logic Unchanged, Focus on Profit Sustainability

Despite the market turbulence, KIS's overall stance in the report is not pessimistic.

The brokerage believes that as the storage industry shifts to a 3 to 5-year LTA contract structure, the core driving force for company valuations will shift from "quarterly ASP growth" to "how long high profitability can be sustained."

KIS's report stated: "From now on, the focus should be on the sustainability of profits. The expansion of LTA is lowering the long-standing performance volatility in the storage industry."

The brokerage expects that as the proportion of contract-based revenues increases and HBM capacity expansion exerts pressure on overall supply, SK Hynix's high profitability levels will be maintained long-term, and valuations will be repriced accordingly.

A target price of 3.8 million won still presents considerable upside potential compared to the current stock price, and KIS maintains its buy rating.

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