UBS raises the KOSPI target to 9,200, seeing continued support for South Korea from tech-led upside and broader non-tech growth

Overview

This is a UBS strategy report on the Korean equity market. The report argues that although the Korean market may consolidate in the short term after a sharp rally and face interest-rate sensitivity, upward revisions to earnings, the memory cycle, policy reforms, and dispersing growth from non-tech sectors should continue to support KOSPI upside. UBS raised the KOSPI target to 9,200 and emphasizes that the next phase should not focus only on tech leaders, but also include holding companies, defense, shipbuilding, electrical equipment, cosmetics, and wealth-effect-beneficiary sectors.

Core views

Core views include: first, Korean EPS is expected to reach record growth in 2026, with upward revisions expanding from memory to 15 sub-sectors, covering about 83% of market value, including about 29% in non-tech. Second, memory remains the key driver of index earnings, with AI servers, HBM, DDR5, LPDDR5, NAND, and KV cache demand jointly driving tight supply-demand. Third, foreign investor selling has made Korean allocations near a historical underweight in emerging-market funds, but if EM flows reverse or rotate into lagging non-tech sectors, foreign investors may re-enter. Fourth, policymakers, corporates, and minority shareholders’ self-interest will continue to drive shareholder-return reform, and treasury share cancellations, higher dividends, and narrowing holding-company discounts are expected to enable re-rating. Fifth, in non-tech sectors, defense, shipbuilding, electrical equipment, independent cosmetics brands, and certain consumer names can jointly support the market's next phase.

Analysis framework

The report combines top-down analysis with sector screening: it first gauges market direction through KOSPI target valuation, EPS growth and revisions, flows, and valuation bands; then screens sectors using sector-level EPS growth, earnings revisions, valuation, flows, and policy exposure; and finally identifies favored and least favored stocks by combining company ratings, price targets, order book, margin trends, NAV discount, dividends, and treasury shares.

Methodology notes

• market_strategyNTM PE target valuation

  Set index target using forward 12-month P/E

  UBS sets a KOSPI target of 9,200, corresponding to 9x forward 12-month P/E, and builds upside and downside scenarios using 9x and 8x valuation.

• earnings_revisionEPS growth and revision screen

  Screening by earnings growth and revisions

  The report emphasizes that stock performance is often driven by EPS growth and revisions, especially around earnings seasons, so it uses 2026/2027 EPS growth, one-month consensus revisions, and sector contribution to judge market and sector opportunities.

• fund_flowforeign ownership and active weight analysis

  Foreign ownership, active-weight and local flow analysis

  The report compares global and emerging-market fund allocations to Korea, foreign net selling, local institution and retail buying, ETF flows, and leverage ETF concentration to assess market liquidity and reallocation potential.

• corporate_governanceshareholder reform and NAV discount framework

  Shareholder return reform and holding-company NAV discount re-rating

  It analyzes the potential narrowing of valuation discount through commercial law revisions, expected capital markets law revisions, treasury share cancellations, higher payout ratios, Value Up disclosures, and holding-company NAV discounts.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KOSPI

  Core index and strategy target

  Strengths

  Strong EPS revisions, valuation still low, potential reallocation from foreign underweight, and policy reforms could improve shareholder returns.

  Weaknesses

  Large recent run-up may lead to short-term consolidation; still high dependence on tech and memory cycles.

  Comparison

  Compared with TOPIX, SSE, Taiwan, and India, the report focuses on Korea's stable valuation discount and re-rating potential.

  Risks

  Persistently rising rates, FX volatility, energy and geopolitical risks, and excessive AI concentration.

• Memory: Samsung Electronics, SK Hynix, Hansol Chemical, Eugene Tech

  Most favored core upside segment

  Strengths

  AI-driven HBM, DDR5, LPDDR5, and NAND demand pushes supply tightness; price momentum in memory remains strong.

  Weaknesses

  Segment has already risen significantly and is sensitive to price cycles and AI capex.

  Comparison

  The report presents Samsung Electronics as top memory pick and also gives SK Hynix a buy rating.

  Risks

  Memory prices peaking, excessive capex pressure on large cloud players, and changes in the HBM competitive landscape.

• Defense: KAI and the Korean defense chain

  Next-phase non-tech support segment

  Strengths

  Order book is stable and at elevated levels, and defense order/profit surprises may continue to drive share performance.

  Weaknesses

  In flat or down cycles, the importance of order and profit timing increases, and valuation is sensitive to delivery pace.

  Comparison

  The report sees defense as a key segment in the next phase and compares shipyard valuation with defense equities.

  Risks

  Delivery delays, lower-than-expected margins, and changes in government procurement or export approvals.

• Shipbuilding: HD HHI, HD KSOE, etc.

  Order-driven cyclical and defense-linked beneficiary segment

  Strengths

  LNGC, offshore, and defense orders keep Korea shipbuilding order forecasts for 2025-2027E robust; newbuilding prices have risen since March.

  Weaknesses

  Stock prices and valuation are sensitive to order mix, delivery cycle, and cost control.

  Comparison

  The report compares Korean shipbuilders with defense names, emphasizing that defense orders may reset market pricing.

  Risks

  Freight rate declines, delayed orders, cost inflation, and FX volatility.

• Holding companies

  Assets benefiting from policy reform and NAV discount narrowing

  Strengths

  Holding-company NAV discounts have narrowed but still sit around 30%-40%; treasury share cancellations and higher payouts may drive re-rating.

  Weaknesses

  Discount repricing depends on corporate action and policy execution, and there is uneven liquidity and subsidiary momentum.

  Comparison

  The report distinguishes pure holding companies from those with operating or unlisted subsidiary momentum.

  Risks

  Reform execution weaker than expected, insufficient improvement in shareholder returns, and minority-shareholder pressure fading.

• Electric equipment: Hyosung Heavy Industries, Doosan Enerbility

  Segment benefiting from AI power demand and energy infrastructure needs

  Strengths

  AI-driven U.S. power demand, with power-grid capex expected to more than double versus 2024 by 2028E; transformer supply tightness supports margin expansion; strong momentum in gas turbines, nuclear, and SMR orders.

  Weaknesses

  Valuation already reflects part of the order-growth expectation, with high bar for converting new orders and margin momentum.

  Comparison

  Hyosung Heavy Industries benefits from grid investment, while Doosan Enerbility benefits from gas turbine, nuclear, and SMR order pipelines.

  Risks

  Public-utility capex delays, equipment supply chain bottlenecks, and energy policy changes.

• Cosmetics: APR, d'Alba Global

  Consumer and overseas expansion beneficiary segment

  Strengths

  The report prefers mass-market and independent brands, strong exposure to overseas, especially U.S., markets, innovation in SKUs, operating leverage, and ODM brand diversification. APR's fundamentals are outperforming expectations, while d'Alba's U.S. and Europe B2B growth potential is undervalued.

  Weaknesses

  APR has already surged and valuation has been re-rated to a high-20s P/E range; d'Alba's prior growth was slower than APR due to premium positioning and channel dispersion.

  Comparison

  The report believes APR retains strong short-term momentum, but risk-reward over 9-12 months is more in favor of d'Alba.

  Risks

  Consumption downgrading, weak marketing efficiency, overseas expansion below expectations, and failure of valuation discount to narrow.

• EV materials: POSCO Future M, EcoPro BM, L&F

  Least favored segment

  Strengths

  Some companies have meaningful positions in the supply chain, but the report does not list the segment as a primary upside driver.

  Weaknesses

  Valuation is high, earnings revisions and sector sentiment are relatively pressured, so it is ranked least favored.

  Comparison

  Compared with memory, AI power equipment, defense, and shipbuilding, EV materials have weaker risk-reward.

  Risks

  Demand slowdown, pricing pressure, earnings below expectations, and valuation contraction.

Key data

• KOSPI target9,200UBS raised the target by 26%, corresponding to 9x forward 12-month P/E.
• KOSPI scenario rangeUpside 10,500; Downside 5,500Upside case corresponds to 9x P/E and downside case to 8x forward 12-month P/E.
• 2026/2027/2028E EPS growth forecast+258% / +46% / +9%Raised from previous +168% / +39% / -15%, and above consensus estimates.
• EPS upgrade coverage15 of 24 sub-sectors; about 83% of market capAbout 29% of market cap is in non-tech sectors, indicating dispersion of growth.
• Foreign net selling YTDabout US$58bnThis shifted Korea to an underweight in emerging-market funds, but local institutions and retail buying provided a hedge.
• Foreign ownership39.2%Up about 3 percentage points YTD.
• KOSPI valuationabout 8x forward 12-month P/EDespite KOSPI being up about 78% YTD, the report still sees valuation as not expensive.
• KOSPI valuation excluding SEC/SKHabout 12x forward 12-month P/EThe report says this remains reasonable given strong non-tech EPS growth.
• 2027E DRAM bit demand growth+36% YoYHigher than 2026E +22%, driven by AI and server demand.
• 2027E NAND bit demand growth+23% YoYHigher than 2026E +20%, supported by AI server storage and KV cache demand.
• 2026E/2027E HBM bit demand33.1bn Gb / 58.7bn GbCorresponding YoY growth of +90% and +77%.
• Retail participation rate28%The report states that Korean retail investors have become a political interest group that policymakers cannot ignore.

Impact & implications

The investment implication is that Korea remains risk-reward tilted to the upside, but portfolios should shift from purely chasing already strong tech leaders to holding both memory core beneficiaries, AI-enabled power equipment, defense and shipbuilding order-chain names, holding-company discount repair, and consumer and cosmetics companies with overseas expansion and operating leverage. On flows, foreign underweight implies potential re-up, while local retail and institutions provide near-term support; however, if rates rise further, AI capex affordability declines, memory prices peak, or geopolitical shocks emerge, upside could be constrained.

Risks

• Persistently rising interest rates are a key risk in the report and may compress equity valuations.
• AI-related demand is highly concentrated, and if capex affordability declines, memory and AI-enabled segments may come under pressure.
• If memory-cycle pricing peaks or supply recovery is faster than expected, it may weaken the EPS revision momentum of the Korean market.
• Macro risks include economic growth volatility, inflation and policy-rate uncertainty, energy prices, and geopolitical shocks.
• Continued foreign outflows or a deterioration in emerging-market liquidity conditions could offset domestic institutional and retail support.
• If shareholder-return reform, treasury share cancellation, higher payout ratios, and capital market law revisions are not implemented as expected, holding-company and re-rating logic could fail.
• Retail investor concentration and single-stock leveraged ETF concentration may increase market volatility.

What to watch

• Whether EPS revisions continue to spread to non-tech sectors around and after Q2 earnings.
• Contract price and LTA negotiation progress for DRAM, NAND, and HBM, and market-share changes for Samsung Electronics and SK Hynix.
• Foreign net buying/selling, EM fund active weight in Korea, Korea foreign ownership, and local retail flow.
• Legislative and implementation progress in H2 2026 for revisions to the Commercial Act, Capital Markets Act, and Act on Securities to curb abnormal price suppression.
• Treasury share cancellations, payout ratio, Value Up disclosures, and changes in holding-company NAV discount.
• Execution pace of orders in defense, shipbuilding, gas turbines, nuclear, SMR, and electrical equipment.
• Changes in Korean consumer behavior, property, household debt, and retail willingness to invest.
• USD, KRW, Korea's rate path, and inflation data.