Improvement in shareholder returns among Korean memory chip companies remains on track, with HSBC preferring SK hynix

Overview

The report focuses on the shareholder return policies of Korean memory chip companies and AI storage fundamentals. HSBC believes that market disappointment over Samsung Electronics' cash-dividend-heavy plan has not changed the direction of improving total shareholder returns, while demand for HBM4, SO-CAMM2, server DRAM, and enterprise SSDs continues to support industry earnings. HSBC reiterates its Buy ratings on Samsung Electronics and SK hynix and names SK hynix as its top pick because of its stronger fundamentals and more proactive share repurchase and cancellation arrangements.

Core views

First, HSBC believes the market's interpretation of Korean memory companies' shareholder return plans is overly pessimistic. SK hynix's share price has risen 12% since August 19, 2026, while Samsung Electronics fell 9% after announcing its plan on August 21. The market was primarily disappointed that Samsung Electronics did not change its policy of returning 50% of free cash flow to shareholders and that the form of return favored cash dividends rather than the greater share repurchases expected by the market. HSBC believes this pullback has instead improved the risk-reward profile and strengthened valuation support. The comprehensive shareholder return arrangements only began on August 20, and overall improvement in total shareholder returns remains on track. HSBC therefore maintains its Buy rating and KRW450,000 target price for Samsung Electronics, as well as its Buy rating and KRW3,700,000 target price for SK hynix. The two companies' approaches to shareholder returns are subject to different ownership and regulatory constraints. Samsung Life Insurance and Samsung F&M hold 8.5% and 1.49% stakes in Samsung Electronics, respectively, bringing their combined ownership close to the 10% ceiling prescribed by rules separating financial and industrial capital. This may encourage Samsung Electronics to favor cash dividends. Meanwhile, preserving dividend income tax benefits for major shareholders also creates an incentive to maintain a 25% payout ratio and increase annual dividends by 10%. In contrast, SK hynix places greater emphasis on share repurchases and cancellations to help SK Square maintain a 20% ownership stake under the holding-company regulatory framework. HSBC therefore believes Samsung Electronics' preference for cash dividends has an institutional rationale, while SK hynix's share repurchase and cancellation approach provides more direct support for per-share value and its ownership structure. Fundamentals are the report's more prominent theme. Server DRAM prices are expected to continue rising amid strong demand for AI and general-purpose servers, while NAND wafer prices are also increasing on enterprise SSD demand. The Vera Rubin platform is expected to generate significant incremental storage configurations: SO-CAMM2-related demand is estimated to equal 6%-13% of total DRAM demand, while NAND demand is estimated to equal 4%-14% of total NAND demand. These new applications mean storage demand comes not only from traditional HBM, but also from server main memory, enterprise SSDs, and platform architecture upgrades. HBM remains the fastest-growing core market. HSBC forecasts a 75% CAGR for the HBM market from 2025 to 2028, reaching USD212 billion by 2028, while total HBM bit demand is expected to post a 37% CAGR over the same period. From 2026 to 2028, the product mix will shift further toward higher-premium HBM4. As platforms such as Rubin Ultra significantly increase HBM configurations, generational upgrades will not only boost shipment volumes but also improve product mix and unit value, which is particularly favorable for SK hynix given its competitiveness in advanced HBM. The economics of AI services and infrastructure investment support this demand. Although the per-GPU cost of the latest NVIDIA GB300 has risen to twice its previous level, the report notes that the cost per million tokens has fallen 35-fold, improving the profitability of AI service providers. At the same time, daily token consumption by AI services is growing rapidly. HSBC expects global server shipments to grow 20% in 2026 and 21% in 2027, with AI server shipments rising 28% year-on-year in 2026 and average DRAM capacity per server increasing 24% in the same year. US cloud service provider capital expenditure is expected to rise 81% to USD680 billion in 2026, while consensus capital expenditure forecasts for major global CSPs continue to be revised upward. This combination means that both server volumes and storage capacity per server are increasing, creating dual demand drivers for DRAM, HBM, and NAND. Financial forecasts reflect the earnings leverage of the memory upcycle. For SK hynix, HSBC expects revenue to rise from KRW97,147 billion in 2025 to KRW343,916 billion in 2026, KRW539,845 billion in 2027, and KRW646,220 billion in 2028. Net profit is correspondingly expected to increase from KRW42,948 billion to KRW229,935 billion, KRW317,758 billion, and KRW340,309 billion. Its forecast P/E ratio declines from 5.0x in 2026 to 3.4x in 2028, free cash flow yield rises from 12.2% to 20.8%, and dividend yield increases from 1.2% to 1.8%. As of August 25, 2026, SK hynix's share price was KRW1,678,000, while its target price remains KRW3,700,000. For Samsung Electronics, HSBC expects revenue to rise from KRW333,606 billion in 2025 to KRW726,677 billion in 2026, KRW950,812 billion in 2027, and KRW1,041,243 billion in 2028. Net profit is expected to increase from KRW45,207 billion to KRW286,824 billion, KRW390,742 billion, and KRW390,420 billion. Its forecast P/E ratio declines from 6.0x in 2026 to 4.4x in both 2027 and 2028, free cash flow yield rises from 13.9% to 23.3%, and dividend yield increases from 4.3% to 6.5%. As of August 25, 2026, Samsung Electronics' share price was KRW257,000, while its target price remains KRW450,000. HSBC ultimately continues to name SK hynix as its top pick because of its stronger fundamentals in areas such as HBM and its shareholder returns being more oriented toward share repurchases and cancellations.

Analysis framework

HSBC first analyzes the share-price reactions following the two companies' shareholder return announcements, then assesses whether the market's disappointment was justified by considering the free cash flow return ratio, structural differences between cash dividends and share repurchases and cancellations, and Korean financial and holding-company regulatory constraints. The report then derives demand for DRAM, NAND, and HBM from AI service economics, CSP capital expenditure, server shipments, storage capacity per server, and product generational upgrades. Finally, it uses company earnings forecasts, free cash flow yields, and valuation multiples to validate its Buy ratings and target prices.

Methodology notes

• Company fundamentals and financial frameworkFree cash flow analysis

  Measuring shareholder return capacity using free cash flow

  The report centers on the policy of returning 50% of free cash flow to shareholders and compares the differing effects of cash dividends, share repurchases, and cancellations on shareholder returns at the two companies.

• Industry analysis frameworkSupply-demand framework

  Assessing industry conditions through server demand, storage configurations, and supply pricing

  The report links AI and general-purpose server shipments, DRAM capacity per server, HBM generational upgrades, and enterprise SSD demand to DRAM and NAND prices to explain revenue and earnings growth in the memory industry.

• Event-driven strategy and behavioral financeExpectation gap/expectation management

  Market expectation gap following the shareholder return announcement

  The report believes investors had overly high expectations for Samsung Electronics' share repurchases and that the 9% pullback following the cash-dividend-heavy announcement exceeded the underlying change in policy fundamentals.

• Valuation methodologyPE/PEG valuation

  Forecast P/E comparison

  The report presents the two companies' forecast P/E ratios for 2025-2028 and uses declining valuation multiples following rapid earnings growth to illustrate valuation support.

• Valuation methodologyEV/EBITDA valuation

  Enterprise value-to-EBITDA multiple

  The report also compares enterprise value multiples such as EV/EBITDA to observe valuation changes at capital-intensive memory companies during an earnings upcycle.

Asset mapping & comparison

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

• SK hynix (000660.KS)

  A direct beneficiary of HBM4, high-end server storage demand, and a more proactive share repurchase and cancellation policy, making it HSBC's top pick in the Korean memory sector.

  Strengths

  Stronger HBM fundamentals, shareholder returns oriented toward repurchases and cancellations, and robust earnings and free cash flow forecasts for 2026-2028.

  Weaknesses

  Forecast dividend yield is lower than Samsung Electronics', rising only from 1.2% to 1.8% during 2026-2028.

  Comparison

  Compared with Samsung Electronics, HSBC believes it has advantages in both fundamental performance and shareholder return structure.

• Samsung Electronics (005930.KS)

  Benefits from server DRAM, NAND, and AI storage demand while advancing total shareholder returns primarily through cash dividends.

  Strengths

  Free cash flow yield is expected to rise from 13.9% in 2026 to 23.3% in 2028, while dividend yield increases from 4.3% to 6.5%.

  Weaknesses

  Its shareholder return policy remains unchanged and is weighted toward cash dividends, falling short of the market's elevated expectations for share repurchases.

  Comparison

  Its dividend yield is higher than SK hynix's, but HSBC prefers SK hynix for its fundamental performance and share repurchase and cancellation approach.

Key data

• HBM market growth75% CAGR from 2025 to 2028, reaching USD212 billion in 2028HSBC's forecast for the global HBM market
• HBM bit demand growth37% CAGR from 2025 to 2028Forecast for total bit demand over the same period
• SO-CAMM2 demand contribution6%-13% of total DRAM demandEstimate generated by the Vera Rubin platform
• Vera Rubin platform NAND demand4%-14% of total NAND demandIncluding opportunities such as enterprise SSDs
• Global server shipments20% growth in 2026 and 21% growth in 2027HSBC forecast
• AI server shipments28% year-on-year growth in 2026AI infrastructure demand indicator
• DRAM capacity per server24% growth in 2026Increase in server storage content
• US CSP capital expenditureUSD680 billion in 2026, up 81% year-on-yearCloud service provider capital expenditure continues to grow strongly
• SK hynix rating and priceBuy; target price KRW3,700,000; current price KRW1,678,000Target price unchanged; current price as of August 25, 2026
• Samsung Electronics rating and priceBuy; target price KRW450,000; current price KRW257,000Target price unchanged; current price as of August 25, 2026

Impact & implications

HSBC believes improvement in shareholder returns at Korean memory companies has not been interrupted by Samsung Electronics' preference for cash dividends, and that the post-announcement pullback has instead strengthened its valuation support. Meanwhile, simultaneous growth in AI server volumes, storage capacity per server, and the share of high-end HBM is expanding the industry's growth foundation from a single price cycle to platform upgrades and structural content growth. Both companies retain Buy ratings, but SK hynix is named the top pick because of its stronger HBM fundamentals and more proactive share repurchase and cancellation arrangements.

What to watch

• Monitor the execution of Samsung Electronics' policy of returning 50% of free cash flow and the actual mix of cash dividends and share repurchases.
• Monitor whether SK hynix's share repurchases and cancellations help SK Square maintain its 20% ownership stake.
• Track the increase in HBM4's share during 2026-2028 and whether the HBM market can achieve a 75% CAGR.
• Watch the incremental SO-CAMM2, HBM, and NAND demand generated by the Vera Rubin platform.
• Track server DRAM and NAND wafer prices, global server shipments, and changes in US CSP capital expenditure.