Bank of America: SK hynix third-quarter earnings beat expectations: Higher prices lift profit, long-term orders support capacity expansion

Why did operating profit beat expectations while net profit fell in the third quarter?

In the third quarter of 2026, SK hynix reported revenue of 104.615 trillion won, up 32% quarter on quarter; operating profit was 83.334 trillion won, up 38% quarter on quarter and 8% above market consensus.
The main driver was higher selling prices: DRAM average selling prices rose by a percentage in the high 20% range quarter on quarter, above market expectations in the low 20% range; NAND rose about 25%. DRAM bit shipments grew about 10%, while NAND declined slightly.
However, third-quarter net profit attributable to shareholders was 39.534 trillion won, down 58% quarter on quarter and 34% below market consensus. Bank of America said weaker non-operating items were mainly related to valuation and disposal losses on the Kioxia investment.

The company guided for fourth-quarter DRAM bit shipments to grow about 25% quarter on quarter, driven by expansion of the 1c process and the ramp-up of M15X capacity; NAND is expected to grow by a mid-single-digit percentage, driven by increased sales of 321-layer enterprise solid-state drives.
HBM4 entered mass production in the third quarter. The company expects it to account for more than 50% of HBM sales or shipments in the fourth quarter, and yields have exceeded plan; negotiations on HBM volumes and prices for 2027 have also been completed.
The number of customers with long-term agreements rose from about 10 in the second quarter to 14, covering more than 50% of capacity for 2027–2028. The agreements typically include market-linked price ranges and prepayments, leaving room for selling prices to rise while capacity is locked in.

Bank of America expects fourth-quarter operating profit to exceed 100 trillion won, above market consensus of about 95 trillion won, based on shipment growth and continued DRAM price increases. It forecasts operating profit of 417.214 trillion and 424.02 trillion won for 2027 and 2028, respectively.
Its model forecasts DRAM average selling prices to rise about 9% quarter on quarter in the fourth quarter, continue rising in the first half of 2027 and ease slightly in the second half; average NAND prices are expected to fall quarter on quarter in each quarter of 2027. Industry data also show that spot prices for 1Tb NAND wafers were weak in 9–October.
After Bank of America raised its earnings forecasts, it expects earnings per share of 440,633 won and 441,843 won for 2027 and 2028, respectively, still below the market consensus of 477,698 won and 566,773 won listed in the report's table.

The company plans to return about 100 trillion won to shareholders in 2026, including more than 30 trillion won in dividends and more than 60 trillion won in buybacks. Of an earlier 400 trillion won buyback, 40 trillion won has been completed; of a separate 20 trillion won buyback approved by the board, 10 trillion won is for employee and executive compensation and is excluded from shareholder returns.
The company expects capital expenditure in 2027 to rise significantly from 2026, for advanced process equipment, a new plant in Yongin and infrastructure; equipment installation and the capacity ramp-up will depend on demand and profitability. Net cash at the end of the third quarter was about 99 trillion won, providing funding for expansion.
Bank of America forecasts capital expenditure of 60 trillion and 65 trillion won for 2027 and 2028, respectively, and free cash flow after capital expenditure of about 263 trillion and 267 trillion won, respectively. It maintained its Buy rating and target price of 3 million won per share, valuing the stock at about 7 times forecast earnings per share for 2027–2028.