[Reuters/Yonhap]
[Reuters/Yonhap]

SK hynix's American depositary receipts are set to receive a new price tag in the US market next week. The listing will place SK hynix in the same arena as US-listed memory chip stocks such as Micron, raising expectations that the company's shares on the Korean market could be revalued as a result.

SK hynix ADRs are scheduled to list on Nasdaq on Thursday, July 10, according to the financial investment industry. Hanwha Investment said in a recent report that SK hynix decided to issue the DRs on June 24 and that the total issuance is valued at approximately 45.5 trillion won ($29.3 billion). The new common shares issued for the ADR will be additionally listed on the domestic stock market on July 29.

In simple terms, SK hynix is not moving its existing Korean shares to the US market. Instead, it will issue new common shares, deposit them with a custodian, and US investors will buy and sell ADRs created on the basis of those shares. The ADRs are linked to the domestic common shares at a fixed ratio, so their price tracks the domestic share price and exchange rate movements.

For existing shareholders, the listing comes with dilution concerns from the new share issuance. The ADR issuance is sized at up to 45.4 trillion won, representing 17.79 million new shares — roughly 2.5 percent of the existing share count. Analysts note, however, that the dilution pressure should be weighed alongside the valuation and demand effects that could emerge from the US market.

The more significant aspect of the listing is not simply that US investors will find it easier to buy SK hynix, but that the company will be benchmarked against US semiconductor stocks in the same market. Once SK hynix trades on Nasdaq, it will be evaluated side by side with US-listed memory and storage companies such as Micron, SanDisk and Seagate.

"The ADR listing is an opportunity to be assessed within the same market as the company's peer group already listed on US exchanges," said Park Jun-young, an analyst at Hanwha Investment. "Given SK hynix's overwhelming valuation appeal, the scale of its earnings and its technological edge, this will be a prime opportunity for a revaluation."

Park cited SK hynix's lower price-to-earnings ratio relative to US semiconductor peers as the core basis for a revaluation. "Competitors are trading at more than 10 times their estimated price-to-earnings ratio on both a current-year and 12-month forward basis, while SK hynix is currently valued at a significantly lower level," he said. He put SK hynix's estimated current-year PER at 7.9 times and its projected next-year PER at 5.1 times.

For retail investors, the key question is whether SK hynix will trade at a premium to its domestic shares on the US market. If the ADR trades above the converted price of the domestic common shares, it signals stronger demand from US investors than from domestic ones. Conversely, if the ADR trades at a discount, it suggests that listing expectations were already priced in or that US market demand is weaker than anticipated.

Trading volume is also worth watching. A price formed on thin volume may have limited impact on the domestic share price. If a premium is sustained on solid volume, however, it confirms genuine demand from US investors. For domestic common shareholders, the ADR price and trading volume can serve as a reference gauge for investor sentiment at the start of the following trading day.

Potential inclusion in US exchange-traded funds and major indexes is another factor to monitor.

"The significance of the ADR listing lies less in a simple expansion of trading venues and more in the potential for follow-on demand through inclusion in US indexes and ETFs," said Yoon Jae-hong, an analyst at Mirae Asset Securities. He estimated that semiconductor index ETFs and Nasdaq index-tracking ETFs could generate demand of approximately $340 million and $450 million, respectively, based on the maximum possible listing size of the SK hynix ADR.

Yoon added that if US active and emerging-market ETFs are also factored in, additional demand of more than $700 million could be expected. "Rather than focusing on demand at the time of the initial listing, investors should pay attention to the phased demand effects that will arise through periodic index rebalancing and ETF inclusion processes," he said.


kacew@heraldcorp.com