Despite a semiconductor boom driven by astronomical investments from Big Tech, leading Korean companies are not receiving fair valuations, according to foreign media analysis.
Reuters columnist Yawen Chen wrote on the 20th in a column titled "AI Memory Chip Champion Faces Valuation Problem" that "the AI boom has rather highlighted valuation issues for SK Hynix, Korea's memory semiconductor leader."
SK Hynix holds a dominant position in high-bandwidth memory (HBM) and solid-state drives (SSD), both facing supply shortages. The company led the HBM market with 57% share as of Q4 last year. Its SSD market share stood at 20% as of mid-2023, ranking second behind Samsung Electronics at 32%.
Yet Korean companies including SK Hynix and Samsung Electronics remain undervalued due to chronic "Korea Discount" factors such as governance issues. According to Huatai Securities, Korean stocks trade at an average 60% discount to U.S. peers due to weak corporate governance and insufficient shareholder protection. Chen noted that "despite a 340% stock surge over the past year, SK Hynix's projected 2027 price-to-earnings ratio stands at 4x, the lowest among memory chipmakers."
SK Hynix was assessed as more vulnerable than domestic peer Samsung Electronics. Chen added that "Samsung Electronics has far more diversified operations than SK Hynix."
The expanding market cap weight of memory giants SK Hynix and Samsung Electronics was also cited as a constraint. With SK Hynix and Samsung accounting for 50% of the MSCI Korea Index managed by Morgan Stanley, global passive funds face limited capacity for additional investment. Furthermore, Korea's weight in the MSCI Emerging Markets Index fell below 16% as of late last month, limiting benefits from the AI beneficiary rally.
However, the near-term outlook for Korea's semiconductor industry remains bright. Big Tech companies including Alphabet, Google's parent company, and Amazon are making massive investments in data center construction. According to Micron Technology's CFO, Big Tech investments are projected to grow from $200 billion in 2024 to $800 billion this year. This will likely translate directly into increased memory semiconductor demand.
SK Hynix in particular is enjoying a golden era, with revenue projected to grow more than twice as fast as competitors this year and operating margins expected to surge from 50% last year to 70% this year.
Self-rescue measures to boost corporate value are expected to follow. Chen noted that "SK Hynix stated in December last year that it is reviewing various options including a possible U.S. stock listing," adding that "this would be a reasonable choice to close the valuation gap."