Why did net profit fall despite a third-quarter beat?

  • SK hynix reported third-quarter 2026 revenue of 104.6 trillion won, up 32% quarter on quarter, and operating profit of 83.3 trillion won, up 38% quarter on quarter. Both exceeded Goldman Sachs’ forecasts and the Bloomberg market consensus. Goldman Sachs said prices for conventional DRAM, NAND and HBM were all stronger than expected, with a higher proportion of HBM4 providing a particular boost to HBM prices.
  • While operating profit exceeded expectations, third-quarter net profit was 39.5 trillion won, down 58% from the second quarter. Goldman Sachs noted that the quarter included approximately 23 trillion won in losses related to investment assets, and lowered its 2026 earnings-per-share forecast by 5%.

Where will fourth-quarter growth come from?

  • The company guided for fourth-quarter DRAM bit shipments to rise approximately 25% quarter on quarter, above Goldman Sachs’ previous forecast of 9%. Although DRAM inventories remain at their lowest level, Goldman Sachs believes migration to the advanced 1c-nanometer process will help increase supply, and expects approximately 30% of DRAM bit output to use that node by year-end.
  • Goldman Sachs also expects increased HBM4 supply from the M15X plant to drive approximately 20% quarter-on-quarter growth in fourth-quarter HBM bit shipments. Together with the bank’s expectation that prices will remain firm, this raised its fourth-quarter operating profit forecast from 90 trillion won to more than 100 trillion won.
  • The company said HBM4 mass production has begun, with stable yields exceeding the original target, and guided for both HBM4 shipments and revenue to exceed those of HBM3E in the fourth quarter.

How much long-term demand has already been secured?

  • The company expects DRAM demand in bits to grow approximately 25% year on year in 2027, and NAND demand to grow nearly 20%. It believes AI infrastructure demand will outweigh the effect of weak PC and smartphone demand, while advanced-process complexity and factory construction timelines constrain supply, keeping overall memory demand above supply through 2030.
  • The number of long-term contract customers has risen to 14, with committed purchases accounting for more than 50% of the company’s total capacity in 2027 and 2028. The company said that, combining secured long-term contracts with demand still under negotiation, DRAM and HBM are effectively sold out through 2029; demand under negotiation and committed purchases are at different stages.

How do higher earnings forecasts translate into shareholder returns?

  • Goldman Sachs raised its earnings-per-share forecasts for 2027 and 2028 by 19% and 22%, respectively, based on higher forecasts for conventional DRAM and NAND selling prices and DRAM shipments, as well as a lower share count from buybacks and cancellations.
  • The company announced a 2026 shareholder return plan of 100 trillion won, including more than 30 trillion won in cash dividends and more than 60 trillion won in share buybacks and cancellations. Based on its estimate of 152 trillion won in full-year free cash flow, Goldman Sachs calculates that the plan represents approximately 65% of free cash flow.
  • Goldman Sachs assumes approximately 55% of free cash flow will be allocated to shareholder returns in 2027–2028, including 80 trillion won in annual buybacks and cancellations, and estimates shareholder yields of 14% and 15% for the two years, respectively.

Why did Goldman Sachs leave its target price unchanged?

  • Goldman Sachs maintained its Buy rating and 12-month target price of 3.5 million won: although earnings forecasts were raised, the target price-to-earnings multiple used for valuation was reduced from 9 times to approximately 7 times, reflecting lower valuation multiples for comparable companies. Relative to the 1.487 million won share price listed in the report, the target implies approximately 135% upside.
  • Goldman Sachs considers the valuation attractive because the share price is close to its forecast book value per share for 2028, when return on equity is expected to be approximately 57%. Risks to its view include deteriorating memory supply and demand, delays in technology migration, weaker end demand, Samsung’s HBM progress and declining AI capital expenditure.