JPMorgan initiates coverage of SK Hynix ADR: 20% discount to US peers, current valuation is very cheap.

JPMorgan Chase initiates coverage of SK Hynix's American Depositary Receipts (ADRs) with an overweight rating and a target price of $245, implying approximately 32% upside from the current share price of $185.55. JPMorgan believes the AI-driven memory chip upcycle will last for more than five years, and SK Hynix possesses significant valuation revaluation potential due to its HBM technology leadership and the earnings visibility secured by long-term supply agreements (LTAs).

According to a report by JPMorgan analyst Jay Kwon, SK Hynix's ADRs are currently trading at a discount of approximately 20% compared to its US counterpart, Micron. This gap is difficult to explain from a fundamental perspective—SK Hynix is comparable to, or even better than, Micron in terms of DRAM profit margins, absolute scale, and HBM execution capabilities. JPMorgan expects this valuation discount to gradually narrow as global investor access improves, liquidity increases, and information disclosure frequency rises following the ADR listing.

Regarding shareholder returns, SK Hynix raised its shareholder return policy from "no more than 50% of cumulative free cash flow (FCF)" to "more than 50%" in August 2026 and announced a 40 trillion won share buyback and cancellation plan. JPMorgan Chase projects the company's cumulative total shareholder return (TSR) to be approximately 41.8% from 2026 to 2028, a level that will strongly support its valuation and drive a shift in market perception of SK Hynix from a cyclical focus to long-term structural growth.

Valuation Logic: ADR Premium and Discount for US Peers Coexist

JPMorgan Chase set a target price of US$245 for June 2027, based on a price-to-earnings ratio of 7 times the average earnings per share of local stock (000660.KS) for FY26 and 27, plus a 20% ADR premium. This premium is referenced to the premium of TSMC ADR relative to local stocks since the start of the AI capital expenditure-driven hardware sector rally in 2024.

Since its listing in July 2026, SK Hynix's ADRs have traded at an average premium of approximately 32%, currently around 30%, reflecting strong global investor demand for this AI memory chip manufacturer. JPMorgan believes that the limited availability of ADRs (currently representing only 2.5% of total share capital) and strict regulatory restrictions on the conversion of Korean domestic shares into ADRs are structural factors maintaining the high premium.

Despite this, SK Hynix ADRs are currently trading at a forward P/E ratio of 5.8, while Micron is at 6.5, representing a discount of approximately 11%. JPMorgan believes that Micron has historically enjoyed a valuation premium of approximately 17%, primarily due to its US-based investor base, passive fund inflows, and a deeper derivatives market, rather than being explained by cyclical profitability or shareholder return policies. With SK Hynix's listing on Nasdaq, these structural frictions will gradually decrease, and the valuation discount is expected to narrow.

AI Cycle Duration: Memory Upcycle Poised to Exceed Four Years for the First Time

JPMorgan Chase maintains its assessment of a "higher-for-longer" upward cycle in the memory market, believing that the current upward trend in DRAM average prices, which started in the first quarter of 2024, is expected to continue until after the fourth quarter of 2028, representing a positive ASP growth trajectory of more than 20 quarters, far exceeding the typical 7 to 8 quarter upward cycle in history.

On the demand side, token consumption continues to accelerate, driving rapid expansion in bit demand for server-grade DRAM and NAND. JPMorgan Chase predicts that cloud service providers (CSPs) will see year-on-year growth of 60% and 58% in DRAM and NAND bit demand, respectively, in 2027. On the supply side, HBM capacity's share of DRAM wafers continues to increase (projected to reach 31% in 2028), coupled with a continued decline in bit output efficiency per unit of capital expenditure, effectively limiting supply growth. The supply-demand gap is expected to persist for the next three years.

JPMorgan Chase projects SK Hynix's earnings per share (EPS) to grow at a CAGR of 34% from FY26 to 2028, with a projected year-on-year EPS growth of 510% in FY26, a further 27% in FY27, and 42% in FY28. The global memory market (DRAM + NAND) is expected to jump from $214 billion in 2025 to $971 billion in 2026, and further expand to $1.44 trillion in 2027.

HBM's leadership and long-term agreements form a moat.

SK Hynix is the world's largest HBM supplier, with a market share of approximately 60% in HBM sales in 2025. Nvidia (NVDA) is its largest customer, accounting for approximately 74% of HBM sales. JPMorgan Chase predicts that as Samsung Electronics' execution improves, SK Hynix's HBM market share will gradually decline to the 40% to 46% range from 2026 onwards, but it will still maintain its market leadership position during the forecast period.

Regarding long-term agreements, SK Hynix has secured over 50% of its capacity through LTAs (Locally Available Agreements), with contract structures clearly favorable to suppliers and upfront payments of approximately 20% to 25% of the total LTA value. JPMorgan believes that LTAs not only provide earnings visibility but will also drive the memory industry's shift from a cyclical to a long-term, structural business model. LTAs cover over 70% of CSP and AI-related demand, accounting for over 85% of revenue, and the significant price premium for server memory makes the LTA portfolio positively contribute to pricing and profit margins.

Increased shareholder returns: a key factor catalyzing valuation revaluation

On August 20, 2026, SK Hynix officially announced that it would raise its shareholder return policy to over 50% of its cumulative fund of cash (FCF) and launch a 40 trillion won share buyback and cancellation plan, equivalent to 63% of its FCF in the first half of 2026. JPMorgan Chase projects the company's total transaction value (TSR) returns to be 7.4%, 14.0%, and 20.4% for 2026, 2027, and 2028, respectively, for a cumulative return of approximately 42% over three years.

JPMorgan believes that the shareholder return framework anchored to FCF (Financially Available Cash) is more transparent than the "excess cash" definition used by its U.S. counterparts, which helps attract value-oriented investors. The company plans to further update its shareholder return plan at its Q3 2026 earnings call (end of October), and a clearer capital allocation policy at that time will be a positive catalyst for the share price.

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