Valuation of South Korean Storage Stocks Approaches Reasonable Levels, Market Earnings Expectations Too Optimistic
On July 22, an independent research firm, TS Lombard, reported that the valuations of South Korean memory chip stocks are nearing reasonable levels, but the market's expectations for future earnings of storage companies may be overly optimistic. The quarterly increase in traditional DRAM contract prices has dropped from 93% to 98% in the first quarter to 58% to 63% in the second quarter, with TrendForce predicting a further slowdown to 13% to 18% in the third quarter. The spot market is trending sideways, and prices for DRAM and HBM have begun to decline. The report notes that long-term supply agreements provide a bottom support for sales and prices but limit suppliers' ability to raise prices, and this protection will gradually weaken over the next year, making it difficult to support a significant upward revision in earnings expectations. In terms of HBM, the annual contract price increase in 2026 lags behind traditional DRAM, with HBM earnings in the first quarter falling below that of 64GB DDR5 RDIMM. Although larger chip areas and wafer resource allocation in 2027 theoretically favor suppliers' bargaining power, the increase in supply participants, including ChangXin, which has begun sampling, is expected to lead global traceable DRAM capacity to reach approximately 2.1 million pieces per month by the end of 2026, with TSMC entering the HBM4 base chip and packaging stages. Currently, the market expects storage companies to see EPS growth of 36% to 40% in 2027, while TrendForce forecasts that unit supply will only grow by 15% to 20%. TS Lombard believes that the current stock prices of Samsung Electronics and SK Hynix roughly reflect a scenario where 2027 earnings are 40% to 50% lower than the market consensus, indicating that valuations are close to reasonable, but the risks of the storage cycle have not completely disappeared.
-- Price
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