[Yonhap]
[Yonhap]

DS Investment & Securities said SK hynix's domestic shares could rise an additional 8 to 18 percent solely on the back of the company's American depositary receipt listing on NASDAQ.

Kim Su-hyeon, head of research at DS Investment & Securities, said in a report Monday that "regardless of industry conditions, the ADR listing event alone is expected to drive a minimum 8 to 18 percent gain in the domestic shares."

Kim noted that the structure of SK hynix's ADR closely resembles that of Taiwan's TSMC.

"SK hynix's ADR is similar to TSMC's in terms of its conversion structure," Kim said, pointing to the pattern that followed the launch of ChatGPT 3.5, when TSMC's ADR surged first and the Taiwan-listed shares followed with a lag.

At the time, roughly three-quarters of the ADR's gains were eventually reflected in the domestic share price, he said.

Kim also said SK hynix's ADR is likely to narrow the valuation gap with US rival Micron in the American market.

SK hynix currently trades at a 12-month forward price-to-earnings ratio of 5.5 times, compared with 6.8 times for Micron.

"Micron is trading at a 24 percent premium to SK hynix on a 12-month forward PER basis," Kim said.

He added that passive funds — including US semiconductor ETFs and NASDAQ index-tracking funds that previously had no access to SK hynix's domestic shares — are expected to flow into the ADR, pushing its valuation closer to Micron's.

Kim said the narrowing of that valuation gap would ultimately have a positive effect on the domestic shares as well.

"This valuation gap closure will contribute to a rise in the domestic share price," he said. "After deducting the ADR premium of 14 to 16 percent, a minimum gain of 8.4 percent is expected for the domestic shares. Applying a three-quarters pass-through rate as in the TSMC case, the upside could reach 18 percent."

Kim also raised the possibility of expanded shareholder returns.

"The new share issuance will reduce SK Square's stake in SK hynix from 20.5 percent to 20 percent. Since the Fair Trade Act requires maintaining a stake of at least 20 percent, SK hynix is expected to follow up with share buybacks and cancellations," he said.

He added that any future ADR issuances by SK hynix would also need to be accompanied by buybacks and cancellations to keep SK Square's stake intact. SK hynix's share cancellations and domestic share revaluation are expected to simultaneously improve SK Square's net asset value discount as well.

SK hynix made its debut on the US NASDAQ market through an ADR listing on Friday.

On its first day of trading, the ADR closed at $168.01, up 12.76 percent from the offering price of $149. Given that one ADS represents one-tenth of a domestic common share, that price was 15.78 percent above the domestic closing price of 2.18 million won ($1,450) from last week.

Market watchers view the ADR listing not merely as a fundraising event but as an opportunity to broaden SK hynix's global investor base and prompt a revaluation of its shares. The key variables going forward are the scale of passive fund inflows from the United States and how much of the ADR's price gains translate into upward momentum for the domestic shares.


rainbow@heraldcorp.com