Daily Brief South Korea: Sino-Ocean Group, SK Hynix, HD Hyundai and more

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. 21Vianet Group
2. SK Hynix
3. Yuexiu Property
4. Nameson Holdings
5. China Jinmao Holdings

and more…

SK Hynix has reported weak Q2/23 results as expected. While the Q2 results registered a recovery on account of an improvement in the memory semiconductor market, the recovery was from a very low base in Q1. Performance remained abysmal compared to last year, with revenue falling by half y-o-y and EBITDA plunging 92%. The financial risk profile continued to be very weak, with large negative FCF, fast-increasing debt and soft earnings.

We believe there is a high level of optimism in AI-related companies, including SK Hynix. Despite the weak results (with some signs of recovery from a low base), the company’s share price surged yesterday.

We maintain our forecasts. Considering the industry downturn, we expect FY 2023 EBITDA to decline c. 80-85% y-o-y, with significantly negative FCF. Moreover, debt should spike c. 50% to cover the negative FCF and fund the USD 2 bn payment for Solidigm. This will likely bring Debt/EBITDA to stressed levels (e.g. 7-8x) at year-end. That said, we expect improvement from FY 2024, on the back of an industry recovery.

We see a high likelihood of downgrades by the agencies in the next 1.5 years. SK Hynix is rated Baa2 (negative)/BBB- (negative)/BBB (stable) by Moody’s/S&P/Fitch. We expect the company to hit the negative rating triggers, given the industry decline and debt-funded acquisition of Solidigm.

• HD Hyundai Global Service is getting ready to complete its IPO in 2024.
• The local media currently estimates the value of HD Hyundai Global Service to be about 2 trillion won to 3 trillion won.
• According to our NAV analysis, it suggests a base case valuation of 75,260 won per share for HD Hyundai, representing a 22% upside from current levels.