SK Hynix ADR Listing Could Narrow Valuation Gap With Micron

SK hynix (000660.KS) shares rose 3.71% to close at 587,000 won on January 10 after the company disclosed it is reviewing listing its treasury shares on U.S. stock exchanges as part of various measures to enhance corporate value.

Market participants expect that if SK hynix lists through American Depositary Receipts (ADR), it could serve as a catalyst to lift the company's stock price, which has been undervalued compared to U.S. memory chipmaker Micron Technology. SK hynix trades at a price-to-earnings ratio (PER) of approximately 11 times based on expected 2025 earnings, significantly lower than Micron's roughly 29 times.

The following Q&A addresses key issues investors are most curious about.

**Q. What is an ADR?**

A. An ADR is a depositary receipt issued by U.S. financial institutions. When a Korean company deposits its treasury shares with the Korea Securities Depository, a U.S. depositary institution issues substitute securities based on these shares, enabling trading on U.S. markets such as the New York Stock Exchange. This means a portion of SK hynix shares would be traded directly in dollars on U.S. markets rather than on the KOSPI.

Several Korean companies including POSCO Holdings, Korea Electric Power Corporation, LG Display, and KB Financial Group already have ADRs trading in the U.S. During market rallies this year, some ADR prices outperformed their underlying shares. Treasury share ADRs are attracting attention as a way to utilize treasury shares without diluting existing shareholders' stakes.

Additionally, ADR listings could enhance stock option attractiveness, providing an edge in talent competition, and strengthen partnerships with U.S. companies.

**Q. What is the expected stock price impact of an ADR listing?**

A. The core expectation is that an ADR listing could narrow the structural valuation gap with Micron. Despite similar product portfolios and company size, SK hynix has been relatively undervalued because its listing only on the Korean market has limited inflows from U.S. long-only and passive funds.

An ADR listing would allow foreign investors to invest directly in dollars, broadening the investor base and potentially increasing the chances of inclusion in the Philadelphia Semiconductor Index (SOX), the global semiconductor benchmark. Taiwan's TSMC and the Netherlands' ASML have already expanded their foreign investor base and enhanced corporate value through ADR listings. TSMC is frequently cited as a case where ADR strength pulled up the Taiwan-listed shares.

Meritz Securities noted that based on current prices, SK hynix's expected 2026 price-to-book ratio (PBR) stands at 2.7 times, lower than Micron's 3.7 times, while its PER of 7.8 times is also undervalued compared to Micron's 12.6 times. "If SK hynix issues ADRs, it could quickly narrow the valuation gap with Micron," said Kim Sun-woo, an analyst at Meritz Securities, who set a target price of 910,000 won.

**Q. What are the disadvantages of issuing ADRs?**

A. Companies issuing ADRs become subject to U.S. securities laws. While this ensures transparent accounting standards, it can create additional burdens. "The risk of U.S.-style class action lawsuits increases during sharp stock price declines," said Seo Sang-young, an analyst at Mirae Asset Securities. "LG Display lost such a lawsuit, while POSCO won."

Concerns have been raised about potential semiconductor technology leaks, as the litigation process may require submission of sensitive materials such as internal emails, meeting minutes, and development documents.

SK hynix also operates factories in China, which could expose it more directly to U.S.-China tensions if listed in the U.S. Additionally, a U.S. listing could intensify "long-short strategy" trading between Micron and SK hynix among local investors. Increased relative value trading between the two companies could heighten stock price volatility in response to global supply-demand changes.

**Q. What obstacles exist for ADR issuance?**

A. SK hynix holds 37.54 million treasury shares (5.2%), of which 20.13 million are pledged as collateral for exchangeable bonds issued in 2023, leaving only about 2.4% actually available for use. That portion alone is worth approximately 10 trillion won ($7.4 billion).

However, the biggest variable is the third Commercial Act amendment bill that would establish new treasury share disposal regulations. The bill submitted to the National Assembly on December 25 clarifies the legal nature of treasury shares as a "capital adjustment item" and includes mandatory treasury share cancellation and strengthened holding and disposal procedures.

Critics argue that by legally designating treasury shares as non-utilizable assets, the exceptions beyond cancellation are too narrow. From this perspective, treasury share ADRs could also be interpreted as an indirect utilization method, making actual implementation difficult.

**Q. Could Samsung Electronics issue ADRs?**

A. The prevailing view is that Samsung Electronics (005930.KS), unlike SK hynix, has little need for ADR issuance. With diversified businesses including mobile and home appliances beyond semiconductors, the effect of ADR issuance on stock price would be limited. The company's already high foreign ownership ratio leaves little room for improving global capital accessibility.

Samsung also holds approximately 150 trillion won in retained earnings, reducing the need for ADRs for fundraising purposes. The regulatory and disclosure burdens of U.S. listing are seen as outweighing the benefits.