SKHZ

Dialectical breakdown of SK Hynix's cyclical valuation logic (incorporating South Korea's new leverage ETF regulations)

I. Bullish Narrative: Growth Stock Valuation, Targeting Trillion-Profit and 7x PE

Core Prerequisites

1. Dual Support from Volume and Price: Long-term demand for AI HBM continues to surge; the supply-demand dynamics for DRAM and NAND remain tight, preventing a crash in chip prices akin to that seen in 2022-2023;

2. Valuation Regime Shift: The market abandons traditional storage cycle definitions, benchmarking against the AI computing power growth track, and no longer constrains valuations with traditional cyclical industry metrics;

3. Loose Liquidity: Global capital for computing power continues to flow into Korean stocks and SK Hynix ADRs, with leveraged ETFs bringing incremental speculative funds to drive up stock prices.

Policy Hedging for Shortcomings

South Korea has tightened rules on single-stock leveraged ETFs: raising margin requirements and halting the issuance of new leveraged products, directly cutting off incremental speculative funds. Without liquidity support, the bullish rally lacks momentum, causing the slope of price increases to slow significantly and extending the timeline for realizing the optimistic 7x valuation based on trillion-profits.

II. Bearish Narrative: Pure Cyclical Stock Valuation, Benchmarking Against Lithium/Coal/Non-ferrous Metals, Where 30x PE Could Halve

Core Logic

1. Unchanged Cyclical Nature: Storage chips remain strong cyclical commodities. The expansion cycles for Samsung, SK Hynix, and Micron are irreversible. Once AI capital expenditure slows, overcapacity will quickly break through chip selling prices;

2. Cyclical Valuation Anchor: The commonality among lithium mines, coal, and non-ferrous metals is that low valuations are given at peak prosperity, while valuations further plummet during recessions. If the market reclassifies SK Hynix as a traditional cyclical product, the current stock price faces immediate room for a halving;

3. Double Blow from Leverage and Liquidity:

① Existing leveraged ETF funds passively reduce positions due to raised margin requirements, creating concentrated selling pressure;

② The ban on new leveraged products means no fresh capital to buy the dip, leading to liquidity dry-up during the decline and amplifying drawdowns;

③ Previously, high-premium ADRs/leveraged ETFs like SKUU and 7709 saw their premiums rapidly erased, with leveraged products falling far more than the underlying stocks.

III. Dialectical Balance Point: The Two Valuations Will Not Move Extremes Unilaterally; Key Depends on 2 Core Variables

1. Variable 1: Sustainability of HBM Demand (The Core Distinction Between Growth/Cycle)

◦ If global large model production continues to expand in 2027-2028 and HBM orders consistently exceed expectations: The market will maintain growth pricing, making the realization of the optimistic 7x PE valuation possible, weakening the cyclical attribute;

◦ If AI capital expenditure cools down temporarily and ordinary DRAM inventory piles up: Cyclical logic returns, directly switching to a lithium-mine-style cyclical valuation, driving stock prices down.

2. Variable 2: Mid-to-Long-Term Liquidity Impact of South Korea's Leverage Regulation

Short-term (1-3 months): Leverage fund flight suppresses stock prices, bearish logic prevails, and volatility increases;

Mid-to-long-term (over half a year): Policies only constrain speculative leverage, not changing the layout of overseas institutional and industrial long-term capital. Extreme halving scenarios are unlikely to persist, and valuation recovery will occur.