Memory Suppliers’ Earnings: Reiterating Our View That Tight Memory Supply Continues Into 2024

Following solid financial results and earnings calls confirming that the memory industry has bottomed out as expected, we have made minor adjustments to our earnings forecasts for South Korean memory suppliers. Our fair value estimate per share for Samsung Electronics is maintained at KRW 80,000, while the fair value per GDR is revised to USD 1,480 from USD 1,560 due to currency movements. Our fair value estimate for SK Hynix 000660 is maintained at KRW 140,000 per share. Although inventory levels peaked in mid-2023, they are still at the high levels, especially for NAND. As a result, memory suppliers are expected to continue maintaining lower capacity utilization and to remain cautious about increasing production capacity next year, which should be favorable for memory prices due to limited supply. We believe that the shares of Samsung Electronics are undervalued. SK Hynix’s shares are on the borderline between 3-star and 4-star territory and have about 18%-20% upside to our fair value estimate.

DRAM average selling prices, or ASPs, rose by midsingle digits for Samsung and 10% for SK Hynix, sequentially, and it was the first time in eight quarters that Samsung experienced a price increase. SK Hynix’s ASP rebounded a quarter earlier due to the higher contribution from high-bandwidth memory, or HBM. Meanwhile, both companies’ NAND ASPs declined slightly in the September quarter, despite the utilization cut implemented by all major suppliers. We believe DRAM is benefiting more from the higher demand for premium high-density products, such as HBM and DDR5, and as a result, the NAND business is dragging down the profitability of both companies. Inventory adjustment for NAND could take at least until mid-2024, but in the meantime, we believe NAND demand will pick up due to price elasticity, leading to tight supply/demand in the second half of 2024. We believe the turnaround in the NAND business will be the catalyst for further share price appreciation for memory suppliers.