Memory Suppliers’ Profitability Expected to Bottom Out in March Quarter; Shares Are Undervalued

After updating our earnings forecasts, we revise our fair value estimates for SK Hynix to KRW 120,000 from KRW 133,000, and for Samsung Electronics to KRW 72,000 from KRW 73,000 per share and to USD 1,440 from USD 1,300 per U.S. GDR (raised due to currency movement). Memory suppliers are suffering from the largest supply-demand gap since 2008 and inventory levels are still high. As a result, we expect both Samsung Electronics’ memory division and SK Hynix to post operating losses in 2023 which are much lower than our previous forecasts. Meanwhile, we maintain our view that the supply-demand gap for memory will be at its widest in these two quarters and will gradually improve toward the end of the year. As a result, we believe that the price erosion should be at its worst in the December quarter and will be less pronounced in the following quarters. We believe memory suppliers’ shares are undervalued as we expect their operating margin to bottom out in the March quarter and continue to improve until at least mid-2024.