SK Hynix strengthens shareholder return commitment; UBS raises target price to Won1,800,000

Overview

This is a UBS company research and earnings review report on SK Hynix. The core conclusion is that the company's commitment to shareholder returns has strengthened significantly after 1Q26, while HBM demand, tight DRAM supply, and the conventional server replacement cycle continue to support earnings and free cash flow. UBS raises the target price to Won1,800,000 and maintains a Buy rating.

Core views

UBS believes the market has not yet fully priced in SK Hynix's long-term fundamental improvement. The report highlights three main themes: first, HBM demand is crowding out DDR capacity, which could keep DRAM supply-demand tight through 4Q27; second, the company's leadership in HBM is expected to continue, with 2026E/2027E HBM industry bit share at 51%/44%; third, management may enhance cash returns through buybacks, cancellation, and dividends, and returning 50% of long-term FCF to shareholders is a reasonable assumption.

Analysis framework

The report combines post-1Q26 earnings forecast revisions, HBM and NAND shipment and pricing assumptions, long-term agreement negotiations, capacity planning for the new Yongin fab, free cash flow and shareholder return forecasts, and values the stock using a forward 12-month P/BV framework based on long-term ROE and cost of equity.

Methodology notes

• Valuation framework12-month forward P/BV and long-term ROE/CoE model

  Use long-term average ROE and cost of equity to derive a fair P/BV multiple, then map it to a 12-month target price.

  UBS raises the target P/BV from 2.86x to 3.14x, based on its long-term ROE forecast increasing from 32.1% to 35.4%, with cost of equity at 11.3%.

• Industry cycle analysisMemory supply-demand cycle and HBM capacity crowd-out effect

  HBM demand consumes DRAM front-end capacity, limiting conventional DDR supply and reducing the severity of cyclical downturns.

  The report expects HBM front-end DRAM capacity to reach 500k/690k wpm by the end of 2026 and 2027, accounting for 25%/31% of industry capacity, thereby extending DRAM tightness.

• Shareholder return analysisFCF payout assumption

  Assess potential enhancement in shareholder returns using the proportion of free cash flow allocated to dividends and buybacks.

  UBS assumes SK Hynix's long-term target is to return 50% of FCF to shareholders, and incorporates buybacks into its forecasts, leading to revisions in share count and DPS estimates.

Asset mapping & comparison

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

• SK Hynix (000660.KS)

  Core covered name; UBS maintains Buy and raises the target price.

  Strengths

  HBM leadership, tight DRAM supply-demand, strong free cash flow, potential increases in buybacks and dividends, and long-term capacity support from the new Yongin fab.

  Weaknesses

  Employee bonus accruals raise COGS and opex, and 2026E/2027E operating profit forecasts were cut; the China manufacturing footprint may need adjustment and could be costly.

  Comparison

  The report believes the stock's 2.11x NTM P/BV implies about 23.8% long-term ROE, below UBS's 35.4% estimate; versus consensus, UBS's operating profit forecasts remain significantly higher.

  Risks

  Cyclical declines in memory prices, weaker-than-expected HBM price negotiations, unfavorable long-term agreement terms, AI demand below expectations, accelerated WFE spending leading to supply pressure, and uncertainty around China plant relocation or technology roadmap.

• DRAM

  Main business and earnings driver.

  Strengths

  HBM is crowding out DDR capacity, the conventional server replacement cycle is strong, and the report expects the DRAM shortage to continue through 4Q27.

  Weaknesses

  It still has commodity-cycle characteristics, contract prices are negotiated every 2 weeks to 3 months, and cash flow can change quickly.

  Comparison

  The industry is already highly concentrated, down from 15 competitors in 1998 to 3, reducing but not eliminating long-term cyclical downside risk.

  Risks

  Demand in conventional applications may decline due to rising prices and supply constraints, or supply may increase if WFE investment accelerates.

• HBM

  The key growth engine behind SK Hynix's valuation re-rating.

  Strengths

  Expected 2026E/2027E industry bit share of 51%/44%; HBM4E pricing is expected to be 50% above HBM4, driving a 38% year-on-year increase in blended pricing in 2027E.

  Weaknesses

  Final pricing has not yet been agreed, and customer long-term agreement terms remain to be clarified.

  Comparison

  UBS believes SK Hynix benefits more from HBM price upside beyond 2027.

  Risks

  Changes in AI demand, demand from customers such as Rubin Ultra and Google, and catch-up by competitors could affect share and pricing.

• NAND flash

  The second-largest memory business and a supplementary earnings contributor.

  Strengths

  UBS raises its NAND bit shipment growth assumptions to 2026E +20% and 2027E +19%; 2Q26 NAND contract pricing appears strong sequentially.

  Weaknesses

  Industry structure has improved less significantly than DRAM, and it remains affected by demand from smartphones, tablets, enterprise SSDs, and servers.

  Comparison

  SK Hynix is one of the world's third-largest NAND flash suppliers.

  Risks

  Uncertainty around the Dalian fab roadmap and the floating-gate roadmap beyond 230L, as well as demand-cycle fluctuations.

Key data

• RatingBuy12-month rating.
• Target priceWon1,800,000Raised from the previous Won1,700,000.
• Current share priceWon1,225,000As of 2026-04-23.
• Expected upside47%Potential upside indicated by UBS on a 12-month view.
• Valuation multiple3.14x NTM P/BVPreviously 2.86x.
• Long-term ROE forecast35.4%The report states the current share price implies long-term ROE of about 23.8%, below UBS's estimate.
• Cost of equity11.3%Input to the valuation model.
• 2026E operating profitWon260tnCut from Won286tn, but still about 24% above pre-results VA consensus.
• 2027E operating profitWon406tnCut from Won443tn, but still about 42% above pre-results VA consensus.
• HBM bit shipment share2026E 51%；2027E 44%UBS expects SK Hynix to maintain the No.1 HBM market share.
• HBM bit shipment volume2026E 18.4bn Gb；2027E 24.7bn GbEquivalent to year-on-year growth of 46% and 34%.
• NAND bit shipment growth assumption2026E +20%；2027E +19%Previous assumptions were +18% and +14%.
• Tax rate assumption from 2Q2622%Lowered from 27%, close to the 1Q26 level.
• Market capitalizationWon891,803b / US$603bDisclosed in the report's trading data table.
• P/BV2.7xOn a 12/26E basis.

Impact & implications

If management formally announces a clearer shareholder return framework, together with an ADR listing, Korean share buybacks, HBM pricing upside, and implementation of long-term agreement terms, these could become important catalysts for the stock price. The report believes SK Hynix has greater leverage to HBM price upside beyond 2027, while improving conventional DRAM and NAND contract prices will support earnings and cash flow.

Risks

• The memory industry still has commodity-cycle characteristics, and prices and cash flow may change rapidly.
• HBM price negotiations and long-term agreement terms have not yet been finalized, which could affect earnings leverage in 2027 and beyond.
• If AI demand falls short of expectations, or if key demand variables such as Rubin Ultra and Google change, HBM and server memory demand could weaken.
• Accelerated WFE spending could increase future supply and pressure prices and margins.
• There is uncertainty around the DRAM and NAND manufacturing footprint in China, and future reductions in China DRAM capacity or costly relocation may be required.
• Fluctuations in demand for smartphones, tablets, enterprise SSDs, and servers will continue to affect the DRAM and NAND businesses.
• The shareholder return framework has not yet been formally announced, and there is execution uncertainty around the pace and scale of buybacks, cancellation, and dividends.

What to watch

• Formal announcement of the shareholder return framework, including the proportions of buybacks, cancellation, and dividends.
• Whether an ADR listing will be accompanied by buybacks of locally listed Korean shares.
• The outcome of HBM pricing negotiations, especially the price premium of HBM4E versus HBM4.
• The terms of revised long-term agreements and their impact on through-cycle pricing ranges.
• Ramp-up progress in 2027 for the first clean room at the new Yongin fab, and progress toward total designed capacity of 360-370k wpm.
• Upside or downside changes in AI demand, including key customers or platforms such as Rubin Ultra and Google.
• The duration of the conventional server replacement cycle, and the sequential trend in DDR and NAND contract prices.