On October 11th Eastern Time, Bank of America released a research report stating that it is optimistic about the prospects of SK Hynix's High Bandwidth Memory (HBM) business. The bank has given SK Hynix a "buy" rating and raised its target stock price from 240,000 Korean won to 280,000 Korean won. There are five main reasons for this:

1. Market share growth: SK Hynix is gradually capturing market share from Samsung Electronics in the HBM market, especially as Samsung's progress with HBM3e technology has been slow, providing Hynix with an opportunity to catch up.

2. Significant sales growth: In the third and fourth quarters of 2024, SK Hynix's HBM sales are expected to reach 2.9 billion and 3.5 billion USD, respectively, accounting for 32% and 38% of its DRAM sales, which is significantly higher than the 15% and 20% in the first and second quarters.

3. Technological leadership: SK Hynix plans to be the first to mass-produce a 12-layer HBM product in the mid-fourth quarter of 2024, ahead of its competitors, further solidifying its market position.

4. High profit margins: Hynix's HBM products have extremely high profit margins, with an expected operating profit margin (OPM) of over 60%, which will bring substantial earnings to the company.

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5. Stable demand and orders: Hynix has secured stable orders from Nvidia and expects a significant increase in shipments in 2025, with prices expected to remain stable. Although competitors may increase the supply of HBM3e, the market demand will not be affected due to Hynix's product quality being highly recognized by major American companies such as Microsoft and Meta.

Bank of America believes that SK Hynix's HBM business is rapidly expanding, with its HBM sales expected to grow from $2.3 billion in 2023 (accounting for 14% of DRAM sales) to $9.2 billion and $15.8 billion in 2024 and 2025 (approximately 60% of the global market share). Due to Bank of America's expectations of increased sales volume and prices, the sales forecast for HBM in 2025 has been raised by 38% compared to previous estimates.

Hynix's profit and cash flow prospects are strong.Bank of America has noted that SK Hynix's profitability and cash flow prospects are very optimistic, thanks to its high-profit-margin HBM business (with an operating profit margin of over 60%). It is expected that in the third and fourth quarters of 2024, SK Hynix's operating profit will reach 6.6 trillion won and 6.7 trillion won, respectively, with profits of 6.1 trillion won and 6 trillion won in the first and second quarters of 2025.

This helps to offset the risks associated with the traditional DRAM memory business. Since the cost competitiveness on Hynix's 1a and 1b technology nodes has been proven, even in the face of weak price trends, the traditional DRAM business can still achieve an operating profit margin of 30-40%.

Looking at the full year, Hynix's operating profit for 2025 is expected to grow to 28 trillion won, surpassing the historical high of 21 trillion won set in 2018 and higher than the projected profit of 22 trillion won for 2024.

Furthermore, Bank of America stated that the company's free cash flow (FCF) will significantly improve, with Hynix's FCF expected to exceed 10 trillion won per year during the 2024-2025 period. These funds will initially be used to repay debt, but after debt repayment, Bank of America expects the company to increase dividends and conduct share buybacks, in line with South Korea's "value enhancement" plan.

Stock price target raised to 280,000 won

Bank of America indicated that the growth of SK Hynix's HBM business will be the main driver for the rise in its stock price. Although the earnings per share (EPS) forecast for the 2024-2025 period is only slightly increased by less than 10% due to DRAM price pressure, Bank of America expects Hynix's EPS to grow by 30% in 2025.

Based on Hynix's advantage in the HBM business and the expected profit growth in 2025, Bank of America maintains its "buy" rating for SK Hynix and raises the price-to-book (P/B) ratio for SK Hynix in 2025 from 1.9 times to 2.2 times, increasing the target stock price from 240,000 won to 280,000 won.