A South Korean brokerage's statement that performance "did not meet expectations" caused SK Hynix to plummet 12%, putting pressure on the entire storage sector

Author: Long Yue

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

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

This deviation directly triggered a market reaction.

After the South Korean stock market opened, SK Hynix's stock price quickly fell over 10%, dropping below the 2 million won mark, a decline of 33% from its historical high on June 25 within just three weeks.

High HBM Proportion Dragging Down ASP

KIS explained the core reason for the profit falling short of consensus in the report: SK Hynix's revenue proportion from HBM (High Bandwidth Memory) is higher than its peers, and the shipment proportion is relatively high, resulting in its average selling price (ASP) increase being lower than the market average.

This logic seems counterintuitive at first—HBM is a high-end product, shouldn't a higher proportion mean more profit?

The key lies in the pricing structure. HBM is usually priced under long-term supply agreements (LTA), which lock in prices that are relatively fixed and do not significantly adjust with market conditions in the short term. In contrast, ordinary DRAM and NAND have higher price elasticity in the spot market, and when the overall market prices rise, the ASP increase for these products is even greater.

A higher proportion of HBM for SK Hynix means that during this round of market average price increases, it "receives less of the price increase bonus" compared to its peers.

During the same period, 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 increase by about 50%—but Hynix's overall ASP increase was "held back" by the contract prices of HBM.

Downgrade Due to LTA Reassessment, Not Fundamental Deterioration

KIS clearly stated in the report that this downgrade is not due to performance concerns, but rather a correction result after incorporating the price assumptions of already signed long-term supply agreements (LTA).

The original report stated: "This is the result of incorporating the signed LTA into the price assumptions and making realistic adjustments to the forecast, not a concern about performance."

KIS also downgraded the operating profit forecasts for 2026 and 2027, which are approximately 9% and 11% lower than previously. However, the brokerage emphasized that as HBM4 officially begins mass shipments in the third quarter, the upward trend in market average prices will drive the overall ASP higher, and at that time, SK Hynix's ASP increase 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 thereafter.

The brokerage maintains a 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 trend in performance.

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

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

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

This triggered two layers of concern: first, the immediate impact of short-term performance falling short of expectations; second, whether the high proportion of HBM constitutes a structural risk—meaning the more SK Hynix bets on HBM, the more limited its ASP elasticity will be during the contract price lock-in period.

Additionally, SK Hynix just listed on the US stock market last Friday, and some funds betting on "new listings" chose to cash out after the ADR went public, further exacerbating the selling pressure.

Panic Spreads: Hong Kong Stock ETF and A-share Storage Stocks Drop Simultaneously

The decline of SK Hynix quickly transmitted to surrounding markets.

In the Hong Kong stock market, the 2x leveraged ETF for SK Hynix fell over 22% in a single day, while the 2x leveraged ETF for Samsung Electronics dropped over 13%.

A-share storage concept stocks also fell in tandem, with several core stocks such as Zhaoyi Innovation, Beijing Junzheng, Jiangbolong, and Baiwei Storage dropping over 7%.

However, from a more macro perspective, the storage semiconductor sector has entered an adjustment period over the past half month, with some individual stocks having fallen over 20%, reaching the technical bear market boundary. Behind this is also the global capital reallocating and rebalancing within AI and various markets, including the rotation logic of "selling chips, buying cloud," as well as the phase rebound in the Hong Kong stock market attracting capital back.

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

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

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

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

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

The target price of 3.8 million won still has significant upside potential compared to the current stock price, and KIS maintains an overweight rating.