Raised $265 billion! Can SK Hynix (SKHY.US) get rid of the “Korean discount” when it lands on NASDAQ tonight?

The Zhitong Finance App learned that South Korean chip giant SK Hynix will be listed on NASDAQ on Friday. This listing will test whether the stock can escape the long-standing “Korean discount” dilemma.

“Korean discount” refers to a phenomenon where the valuation of Korean companies is generally lower than that of their global peers due to factors such as flawed corporate governance and insufficient transparency in the chaebol structure.

By issuing American Depositary Receipts (ADR), SK Hynix will directly connect with the world's largest capital market. Industry experts believe this move may narrow the “Korean discount.”

According to LSEG data, although SK Hynix is in a leading position in the rapidly growing high-bandwidth memory (HBM) market, its 12-month forward price-earnings ratio is only 4.8 times, compared to the industry average of 29.84 times, and the price-earnings ratio of US competitor Micron Technology (MU.US) is 6.6 times.

Rolf Bulk, head of semiconductor and infrastructure at Futurum Group, said: “The ADR listing is expected to narrow the valuation gap, but we don't think the Korean discount will be completely eliminated.”

Zavier Wong, a market analyst at multi-asset trading platform eToro, said that the price-earnings ratio gap between Micron and SK Hynix is mainly due to two major issues: investment channels and cognitive familiarity. Over the years, SK Hynix's funding channels for US institutions have been limited. Even if it occupies a stronger position in the AI storage field, valuations have been underestimated for a long time.

He said, “An increase in Hynix's stock price does not equal a narrowing of discounts. Even as its stock price rises, the valuation gap with Micron remains unchanged.”

According to LSEG data, Micron's stock price soared by nearly 250% this year, while SK Hynix rose 240%.

Peter Kim, a global investment strategist at KB Financial Group, said that Korean stocks have always had barriers to foreign investment purchases, and this listing is expected to greatly improve the trading entry conditions for overseas investors.

“Expanding trading channels will make it easier for global investors to trade Hynix shares. Currently, the stock still has valuation discounts compared to the Korea Composite Stock Price Index, Micron, and Samsung. Companies need to meet certain standards to be listed on the NASDAQ, which can allay some of the concerns of US investors and help reduce discounts.”

According to reports, the NASDAQ listing rules set a hard threshold for corporate financial indicators and liquidity, including requirements such as minimum market value, size of publicly traded shares, number of shareholders, and issued share price; at the same time, listed companies must abide by a complete set of corporate governance standards, covering dimensions such as audit committees, directors' independence, and shareholders' voting rights.

Raised 26.5 billion US dollars, and the greater value is to connect with the US market

SK Hynix's current ADR offering is priced at 149 US dollars, and the capital raised is about 26.5 billion US dollars. It is expected to set a new IPO record for US foreign companies. According to reports, the 177.9 million copies of ADR issued by SK Hynix this time have been oversubscribed by more than seven times, with institutions such as Baillie Gifford and others intending to subscribe up to 7 billion US dollars in total.

Notably, this launch comes at a time of severe shocks in the global chip sector. Despite significant recent stock price fluctuations, SK Hynix set its ADR issue price at $149 per share, a premium of about 3.1% over the closing price of its Korean stock on Thursday. Each SK Hynix ADR is equivalent to one-tenth of the company's common stock.

Analysts believe that the long-term value brought by opening up US investor channels may far exceed the current financing itself.

Ji Cheong, Deputy Director of Global Ratings at S&P, said that the company's annual capital expenditure is expected to reach 50 trillion to 70 trillion won in the next two years. The current IPO capital will only cover part of the investment to expand production, and the vast majority of capital expenditure will still be supported by internal cash flow.

He added, “Over the next two years, the company is expected to generate operating cash flow of over 200 trillion won per year. ”

eToro's Wong believes that this listing will strengthen Hynix's ability to expand financing and pave the way for more capital operations in the US, including stock repurchases, increased investor participation, and broader expansion of the US market.

HBM has gone from being a single family to competing for hegemony, and the production capacity gap is still a long-term obstacle

As SK Hynix issues ADR, the market is also evaluating whether the company can continue to lead the high-growth HBM market that supports AI accelerators.

Rayliant's chief portfolio manager Philip Wool said SK Hynix is in a “predicament brought about by success” because strong demand for HBM far exceeds its supply market capacity.

This supply gap gave Samsung Electronics and Micron an opportunity to take advantage of: the two companies accelerated the deployment of similar products and signed supply agreements with major cloud giants to help cloud manufacturers diversify the AI chip supply chain.

Futurum Group's Bulk predicts that SK Hynix will still be the world's largest HBM supplier, but its market share may drop from about 57% last year to about 50% this year; as Samsung gradually gains share and Micron stabilizes its position as the third-largest manufacturer, SK Hynix's share will gradually drop to around 40%.

The real core challenge for the industry is not market share, but production capacity. Bulk said, “The core of the market debate is not about how much share is but who can provide enough production capacity to meet demand.” He also said that even though major manufacturers have announced plans to expand their fabs, production capacity is still insufficient to support expected demand until the end of 2030.