UBS said in a July 29 research note that the market’s valuation reset for SK Hynix lacks support. The bank said the HBM leader is trading at just 1.66x 12-month forward price-to-book, a level that implies a long-term ROE of 18.9%, while UBS forecasts average ROE of 40.2% between 2027 and 2031. UBS kept its buy rating and lowered its target price to KRW 3.0 million from KRW 3.2 million.
According to the report summary, SK Hynix shares have dropped 52% from their June 22 peak, though the stock remains up 115% this year. UBS said the market is pricing the company at levels associated with cyclical troughs even as the structure of the memory industry has changed.
Valuation implies 18.9% ROE, while UBS sees 40.2%
UBS uses a price-to-book framework based on long-term ROE and cost of equity. At the current 1.66x multiple, SK Hynix’s implied long-term ROE is 18.9%. The report said that level sits below the 17.7% average ROE recorded in the post-consolidation, pre-AI DRAM era from 2012 to 2022, even though UBS believes the company’s earnings power is now well above that period. Its forecast for average ROE from 2027 to 2031 stands at 40.2%, a gap of 21 percentage points.
The note also said consensus expectations for 2027 operating profit have moved higher even as the stock has fallen 52%. UBS said its own estimate is 17% above consensus. Analysts are still raising earnings forecasts while the stock continues to retreat, and the report argues that divergence is unlikely to last.
Long-term agreements are being signed faster than expected
UBS said long-term agreements are accelerating. The bank had previously expected a slower pace, but said 10 agreements have already been signed, with more still under negotiation. Counterparties include U.S. hyperscalers and large OEMs.
UBS said LTAs could cap part of the upside in ASP over the short term, but should help support margins and returns over a longer period. The report added that pricing talks for HBM in 2027 and beyond are also moving forward.
UBS takes a more bullish view on memory demand
On demand, UBS said it is more constructive than the broader market. It expects DRAM bit demand growth to rise from 22% in 2026 to 36% in 2027, while NAND demand growth is projected to increase from 20% to 23%.
The report identified AI agents as the main driver. UBS said the impact is not limited to HBM and is extending into DDR5 and LPDDR5 in traditional servers, as well as KV cache and storage demand for NAND.
Supply remains tight, with HBM still taking most new DRAM capacity
UBS said the supply picture has not changed materially. Nearly all new DRAM wafer capacity is being directed to HBM, and outside China there is no new NAND capacity. It expects the share of DRAM front-end capacity allocated to HBM to reach 25% by the end of 2026 and 31% by the end of 2027.
UBS estimates HBM capacity will increase from 230,000 wafers per month at the end of 2026 to 270,000 wafers per month at the end of 2027. HBM shipments are projected to rise from 17.2 billion Gb in 2026 to 23.0 billion Gb in 2027. SK Hynix is expected to hold a 48% share of HBM shipments in 2026 and 39% in 2027, slightly below Samsung’s 41%, while remaining one of the key suppliers.
UBS trimmed its 3Q26 operating profit forecast
The note said DRAM ASP rose only 30% quarter over quarter in the second quarter, below earlier expectations. UBS gave three reasons:
- Mobile DRAM rose to 19% of revenue and carries lower pricing than other categories.
- Fixed-price clauses in some LTAs have taken effect.
- HBM4 only began shipping at scale near the end of the quarter.
Based on those factors, UBS cut its 3Q26 operating profit forecast to KRW 86 trillion, though it said that figure still sits slightly above market consensus.
Free cash flow could back repurchases and broader shareholder returns
UBS expects free cash flow of KRW 188 trillion in 2026, KRW 320 trillion in 2027, and KRW 374 trillion in 2028. The report said free cash flow generation remains strong even as capital expenditure keeps rising.
Capital expenditure is projected at KRW 47 trillion in 2026, representing about 71% year-over-year growth, then KRW 62 trillion in 2027, up 31%, and KRW 67 trillion in 2028, up 8%. The first clean room at the Yongin plant is expected to begin equipment installation in February 2027, with the second scheduled for the second half of 2027. The M17 NAND plant could begin mass production in 2029.
UBS said SK Hynix could start share repurchases in the second half of 2026, with an estimated size of about KRW 12 trillion. The company may also provide a broader update on shareholder returns during its 3Q26 earnings call. UBS said it has long expected SK Hynix to return 50% of free cash flow to shareholders through a mix of dividends and buybacks.
Report says the market is using an old-cycle framework
The article’s summary of the UBS note said the DRAM industry has consolidated from 15 suppliers to three, lifting supply discipline. It argued that SK Hynix’s earnings structure has changed and that the old cyclical-stock framework no longer fits. UBS also said demand growth tied to AI agents is still accelerating, while LTAs are helping set a floor for longer-term margins.
The report concluded that the stock is being priced on old-cycle assumptions despite much stronger earnings power than in the prior peak. At today’s 1.66x price-to-book multiple, the market is implying 18.9% ROE, while UBS expects the company to generate around 40%.
The piece said it is a整理 and interpretation by Chaoxiang Research of a third-party sell-side research note from UBS dated July 29, 2026, combined with public market information. It also said the rating, target price, earnings forecasts, and related views cited in the article are those of the brokerage analyst and represent only the position of that institution, not Chaoxiang Research, and do not constitute investment advice.
The article ended with a warning that markets carry risk, decisions should be made independently, and the content should not be used as a basis for buying or selling any security.
