SK Hynix: Ground to recover further

SK Hynix's share price has recovered 39% since the July trough, but is still down 36% from the June peak. Key investor concerns remain: 1/ Sustainability of the AI capex cycle: The UBS 3Q26 APAC Tech Tour provided no evidence of a slowdown, even post HBM de-specing. If anything, server DDR5 and enterprise SSD demand continue to move up for '27 onwards. 2/ HBM pricing negotiations: SK Hynix may provide volume discounts to Nvidia, and typically share some of the benefits of yield improvement through its contract mechanism. But as Nvidia brought down pin-to-pin speed requirements for HBM4 (from 11.7Gbps to 10.6), we believe the gap to Samsung's pricing is likely limited. We forecast SK Hynix HBM ASP to increase 62% YoY in '27E. 3/ Shareholders returns: We expect SK Hynix to announce the next round of shareholders returns measures at its 3Q26 conference call. SK Hynix reiterated that 50% of FCF is now a floor. At 2.63x NTM Book the stock is not discounting our LT ROE forecast of 50.0%, FCF