UBS Key Call: SK Hynix — Shareholder Returns Approaching a Major Inflection Point

UBS maintains a Buy rating on SK Hynix (000660.KS) and raises its 12-month target price from Won1,700,000 to Won1,800,000, citing a significant positive shift in management's shareholder return posture. During the 1Q26 earnings call, management articulated a target net cash level of Won100 trillion to safeguard financial flexibility for future investments while simultaneously enhancing cash returns through share buybacks and retirement and dividend increases, potentially alongside an ADR listing. UBS assumes a long-term shareholder return rate of 50% of free cash flow is reasonable; even at that level, net cash would still reach Won741 trillion by end-2030. Near-term catalysts include HBM pricing negotiations, revised long-term agreement terms, and expansion of AI memory demand into additional modalities. The current share price at 2.1x next-12-month P/B reflects only a 23.7% long-term ROE, versus UBS's estimate of 35.2%, implying roughly 47% upside. UBS reiterates its assumption that SK Hynix's blended HBM pricing rises 38% year-on-year in 2027, with HBM4E priced 50% above HBM4. The first cleanroom at the Yongin megafab is expected to commence in 2027, with total designed capacity of 360,000–370,000 wafers per month. NAND bit shipment growth forecasts were raised to 20% for 2026 and 19% for 2027. Operating profit estimates were trimmed to Won260 trillion for 2026 and Won406 trillion for 2027 due to employee bonus provisions, though these remain 24% and 42% above Visible Alpha consensus, respectively. The group tax rate assumption was lowered from 27% to 22%.