SK hynix shares may outpace Samsung Electronics despite output cuts

SK hynix Inc. headquarters [Courtesy of SK hynix]

Samsung Electronics Co. and SK hynix Inc., South Korea’s two leading chipmakers, are cutting production, but their stock movements could be different this year, according to historical data.

Past data show SK hynix stock rose higher than Samsung Electronics after both announced a chip production cut. In 2008, 2016 and 2019, both curtailed facility investments, but the three-year average price-to-earnings ratio was 115 percent for SK hynix, while Samsung Electronics and other chip companies recorded returns of 55 percent and 70 percent, respectively, said Lee Jae-man, an analyst at Hana Securities Co., on Monday.

The analysis attributes SK hynix’s higher stock price return to its higher dependence on semiconductor business, enabling it to fully benefit from the industry’s cyclical upturn. The investment return during those three years was positive.

The analyst also predicted that foreign investors, who have a significant impact on shares of Korean chipmakers, will have a favorable view to the Korean companies due to the possibility that the U.S. Federal Reserve may stop hiking its interest rates in May.

During previous periods when interest rates remained unchanged, foreign investors flocked to Samsung Electronics after shifting their short position, the analyst said.

Although large-cap companies that have seen the lowest stock returns are expected to rebound in the short term, investors will pay more interest to small and mid-sized companies on the semiconductor value chain, Lee said.

Samsung Electronics officially declared a production cut on Friday, stating that it is reducing memory production to a meaningful extent. This is the first time that Samsung Electronics has officially announced a production cut in about 26 years since the foreign exchange crisis in June 1998.