SK Square (402340.KS) is emerging as the biggest beneficiary of SK hynix's (000660.KS) rally, with shares of the chipmaker surging past the 1.3 million won mark. Analysts cite expectations that some fund demand unable to directly hold SK hynix could shift to SK Square, along with growing potential for a narrowing of the net asset value (NAV) discount as the value of its SK hynix stake rises.
According to financial data provider FnGuide on Tuesday, Daishin Securities maintained its "buy" rating on SK Square and raised its six-month target price by 32% to 1 million won from 760,000 won. SK Square closed the previous session at 789,000 won.
The key driver is the value of its SK hynix stake. SK Square holds SK hynix as its core asset, with the chipmaker's share price gains translating directly into improvements in SK Square's NAV. While SK hynix rose 5.7% the previous day, SK Square climbed 8.8%. SK Square surpassed 100 trillion won in market capitalization for the first time, becoming the fifth Korean company to join the "100 trillion won club."
"We lowered our target discount rate to 30% to reflect SK hynix's market cap gains and prospects for further upside," said Kim Hoi-jae, an analyst at Daishin Securities. "There is ample room for SK Square's discount to NAV to narrow." SK Square's NAV discount rate had ranged from 44% to 77% since its spin-off listing in 2021 but has recently narrowed to around 46%.
Regulations on single-stock ownership limits for equity funds are another factor enhancing SK Square's appeal as an alternative investment. Under the Financial Investment Services and Capital Markets Act enforcement decree, equity funds are restricted from holding more than 10% of a single stock, and the standard has been applied to SK hynix since October last year. Although the Korea Financial Investment Association adjusts SK hynix's market cap weighting once a month, the recent sharp price increase has raised the possibility of a gap between the announced weighting and the actual weighting, suggesting SK Square's appeal as an alternative play will persist.
SK Square's strengthened shareholder returns were also positively assessed. Daishin Securities expects SK Square to carry out a total of 310 billion won in shareholder returns this year, including 200 billion won in its first cash dividend, which will be tax-exempt, and 110 billion won in share buybacks. Dividend income from SK hynix, including a special dividend, is projected at around 710 billion won.
Separately, Mirae Asset Securities on the same day raised its target price for SK hynix by 20% to 2 million won from 1.66 million won. "With shipments constrained through the first quarter of this year, rising average selling prices (ASP) have driven a sharp increase in profit margins," said Kim Young-gun, an analyst at Mirae Asset Securities. "From the second quarter, shipment volumes will also increase, sustaining top-line growth."
