汇丰银行-存储器行业-memory sector：broader server impact on dram asp and earnings-20170628-hsbc 21页

'28June2017MemorysectorEQUITIESSEMICONDUCTORBroaderserverimpactonDRAMASPandearningsKoreaWenowexpectDRAMpricestoincreaseuntilend-4Q17eRickySeo*2Q17preview:anticipatingbetterresultsthankstothepositiveSemiconductor/OLEDAnalystTheHongkongandShanghaiBankingCorporationcontributionofserverDRAM(whichishigherpriceandmargin)Limited,SeoulSecuritiesBranchrickyjuilseo@kr.hsbc.com+82237068777ReiterateourBuyonSamsungwithnewTPofKRW2.8mKennethShim*(fromKRW2.6m)andHynixwithKRW86kTP(fromKRW75k)ResearchAssociate,TechTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranchRobustserverdemandshouldleadtoacontinuationinDRAMpriceincreases.Wekennyshim@kr.hsbc.com+82237068779reiterateourpositiveviewonthememorysectoraswenowexpectDRAMpricestocontinuetoriseuntilyear-enddueto:1)robustserverdemandfromdatacentres;2)*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisstillconservativecapeximplementation,and3)slower1xnmmigrationtolimitoutputnotregistered/qualifiedpursuanttoFINRAregulationsgrowth.Firmserverdemand,whichismainlycomingfromexpansionofcloudserviceforartificialintelligence(AI)applications,isleadingDRAMmakerstoallocatemorecapacitytoserverfrommobileandPC,causingacontinuationinsupplyshortage.Weestimateserverdemandwilloutgrowthemarketwith46%yoybitdemandgrowth(versus22%yoyindustry),accountingfor38%oftotalDRAMdemandby2018efrom26%in2016.Givenhighermarginprofileofserver,thereislessreasontosellPCandmobileDRAMatadiscountaslongasthereisstrongserverdemand,soserverisaleadingindicatorforoverallDRAMpricegoingforward.Also,therearelessBOMcostssinceservercustomersaremainlyhighermarginBtoBcustomers.2Qpreview:betterduetogreaterserverimpactonearnings.AtSamsungandHynix,weexpect2QOPtobe5%/6%betterthanourpriorestimateatKRW13.5tn/KRW3.1tn,respectively,becauseofthepositiveimpactstemmingfromtherisingcontributionofserverDRAM.AsthepricepremiumofserverrelativetomobileandPCDRAMhasexpanded,itsimpactonDRAMASPshouldbegreaterthanwepreviouslyexpected.Also,asservermarginisthehighestamongDRAMs,itsincreasingcontributionwillacceleratemarginexpansion.Thistrendwillcontinuethroughouttheyearasweassumeserverwillreach40%and30%oftotalDRAMsalesatHynixandSamsung,respectively,by4Q17(from30%and19%in1Q17).ForSamsung,bettermarginprofileofOLEDduetoimprovedproductmixtopremiumflexiblewillalsohelptogeneratebetterearnings.ReiterateBuyonSamsungwithnewTPofKRW2.8m(fromKRW2.6m)andHynixwithKRW86kTP(fromKRW75k)onearningsupgradefromgreaterimpactofrisingserverDRAMcontributionandvaluationbaserollover.Weraise2017/18eearningsforSamsungby6%/8%andHynixby8%/14%,andalsorollovervaluationbaseto3Q17-2Q18eforbothtoreflectthenextoneyearofgrowth.WithROErising,weviewbothSamsungandSKHynix’svaluationsasattractive.KeychangestoratingsandestimatesCurrent______TP__________Rating___Upside/CompanyTickerCurrencypriceOldNewOldNewdownsideMarketcap3mADTV(USDm)(USDm)SamsungElectronics005930KSKRW2,415,0002,600,0002,800,000BuyBuy15.9%278,293439SKHynix000660KSKRW69,20075,00086,000BuyBuy24.3%44,428158Source:Bloomberg,HSBCestimates.Pricedasofcloseat27June2017Disclosures&DisclaimerIssuerofreport:TheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesThisreportmustbereadwiththedisclosuresandtheanalystcertificationsinBranchtheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.ViewHSBCGlobalResearchat:https://www.research.hsbc.com EQUITIES●SEMICONDUCTOR28June2017DRAMpriceincreasesshouldcontinueuntilend-4Q17duetorobustserverdemandWereiterateourpositiveviewonthememorysectoraswenowexpectDRAMpricestocontinuetoriseuntiltheendof4Q17.Weattributethismainlyto:1)robustserverdemandfromdatacentresegment,2)stillconservativecapeximplementationand3)slower1xnmmigrationtolimitoutputgrowth.Strongerthanexpectedserverdemand,whichismainlycomingfromexpansionofcloudserviceforartificialintelligence(AI)applications,isleadingDRAMmakerstoallocatemorecapacitytoserverfrommobileandPC,helpingsupplyshortagetocontinue.Weestimateserverdemandwilloutgrowthemarketin2017e,with46%yoyannualbitdemandgrowth(versus22%yoyindustrybitdemandgrowth),accountingfor38%oftotalDRAMdemandby2018efrom26%in2016.SincethereislessreasontosellPCandmobileDRAMatadiscountaslongasthereisstrongserverdemand,whichhashighermarginprofile,serverwillbealeadingindicatorforoverallDRAMpricegoingforward.Chart1.DRAMpricewillshowupwardChart2.RobustserverDRAMdemandtrenduntilend-2017e,andserverDRAMismeanssupplyshortageshouldcontinueakeypriceindicatorgoingforwardNewPCDRAMcontractpriceforecast(8GBDDR4);LHSDRAMsupplysufficiency(new)NewserverDRAMcontractpriceforecast(32GBDDR4);RHSDRAMsupplysufficiency(old)(USD)(USD)2.7%3%803500.5%28470252270300-1.3%2490%60212217250176-3%-1.2%5014016056.958.8200-2.3%12754.54048.7150-6%-4.2%-5.3%3039.510033.335.7-9%2029.35026.327.5100-12%-9.8%3Q151Q163Q161Q173Q17e1Q162Q163Q164Q161Q172Q17e3Q17e4Q17eSource:DRAMeXchange,HSBCestimatesSource:WSTS,companydata,HSBCestimatesChart3.ServerDRAMbitwillcontinuetoChart4.ServerDRAMwillaccountfor38%outgrowthemarketoftotaldemandin2018efrom26%in2016ServerdemandbitgrowthServerportionoftotalDRAMdemandTotalDRAMdemandbitgrowth60%50%50%45%46%38%43%43%40%41%39%33%40%30%25%26%30%25%40%20%18%31%20%16%20%27%28%22%22%10%10%14%0%0%201220132014201520162017e2018e201220132014201520162017e2018eSource:WSTS,HSBCestimatesSource:WSTS,HSBCestimatesItseemsthatweakdemandfrommobileDRAMsegmentisfullyoffsetbystrongerdemandinserver.WeakmobileDRAMdemandamidslowerChinasmartphonesalesandinventoryhikewasakeyconcernforinvestorsasitmayleadtooversupply.Weakmobiledemandhasbeencomingfromslowercontentsgrowth(GBpersystem)atsmartphoneaswellsincetherewasadelayin6GBupgrade(from4GB)atultrahigh-endsegmentduetoBOM(billofmaterials)costburdenfrompricehike.SmartphoneisrelativelysensitivetoBOMcostsincreasegiventhatitisaconsumerproduct.Assuch,DRAMmakers’mobileDRAMcontributionhascontractedin2Q17andwillbemaintainedforthenexttwoquartersatasimilarlevel.2 EQUITIES●SEMICONDUCTOR28June2017ServerislesssensitivetoBOMcostsincreaseTheStreetisconcernedabouttheburdenfrombill-of-materialcostsdrivenbytheincreasingDRAMprice,butserverlookstobepartiallyimmunefromsuchpressuregiventhat1)serverisaB2Bbusiness,2)sizeableinfrastructureinvestmentsaremadeinthedatacentreindustry,and3)akeygrowthapplication,AI,isatearlystageofthegrowthandgeneratingrelativelyhighmargin.Inthemeantime,itistruethatBOMcostportionofDRAMatPCandsmartphoneareheadingtohistoricalhighlevels,buttherearefewerreasonstosellPCandmobileDRAMatadiscountaslongasthereisstrongserverdemand,whichhashighermarginprofile.Table1.Serverbillofmaterial(BOM)forax86serverComponentsCostrangeperunit(USD)As%oftotalBOMCentralProcessingUnit(CPU)1300-250045-50%Random-accessMemory(RAM)160-24525-30%Solid-stateDrive(SSD)190-29010-15%HardDiskDrive(HDD)85-1254-9%Switch200-3004-9%Card140-2101-2%Cable105-1551%Powersupplyunit(PSU)105-1601%Printedcircuitboard(PCB)60-90<1%Frame300-400<1%Powerdistributionunit(PDU)280-400<1%Heatsink20-30<1%Fan12-20<0.5%SerialATADiskonModule(SATADOM)50-80<0.5%Others15-30<0.5%Source:HSBCestimates.Note:the%oftotalBOMisconsideredtheunitscontainedperboxChart5.DRAMBOMcostsportionatChart6.PCDRAMpricewillcontinuetorisenotebookisreachingrecentpeakasserverpricehikereducesPCoutputsBOMcostportionofPCDRAMatnotebookPC(USD)NewPCDRAMcontractpriceforecast(8GBDDR4)12%10.9%10.9%80+4%qoq+3%qoq9.0%+12%qoq8.5%709%+36%58.8qoq56.96.8%6054.5+30%-10%+4%48.76%50qoqqoqqoq35.7403%29.33.8%3.5%26.327.5300%201Q091Q101Q111Q121Q131Q141Q151Q161Q171Q162Q163Q164Q161Q172Q17e3Q17e4Q17eSource:DRAMeXchange,HSBCestimatesSource:DRAMeXchange,HSBCestimatesGreaterserverDRAMimpactonASPandprofitabilityWeexpecttherisingcontributionofserveratSamsungandHynixwillhaveapositiveimpactonearningsbecauseweanticipatethatthepricepremiumtomobileandPCDRAMwillcontinuetowiden.AsthepricepremiumtomobileandPCDRAMhasexpanded,theimpactofserveronDRAMASPwillbegreaterthanwepreviouslyexpected.Also,asservermarginisthehighestamongDRAMs,itsincreasingcontributionwillacceleratemarginexpansion.Also,thistrendwillcontinuethroughouttheyearasweassumeserverwillreachto40%and30%oftotalDRAMsalesatHynixandSamsung,respectively,by4Q17from30%and19%in1Q17.3 EQUITIES●SEMICONDUCTOR28June2017Chart7.ServerpremiumovermobilewillChart8.ServerpremiumoverPCwillbeexpandduetopricehikeenlargedasserverpricetobeaheadofPCServerpremiumovermobile80%ServerpremiumoverPCDRAM40%70%30%60%20%50%10%40%0%30%4Q151Q162Q163Q164Q161Q172Q17e3Q17e4Q17e-10%20%-20%10%-30%0%Aug-15Jan-16Jun-16Nov-16Apr-17Sep-17-40%Source:DRAMeXchange,HSBCestimatesSource:DRAMeXchange,HSBCestimatesChart9.ServercontributionatSamsungChart10.MobilecontributionatSamsungandHynixwillreachto30%and40%ofandHynixhascontractedandwillbetotalDRAMsalesbyend-2017,weestimatemaintainedatsimilarlevel,weestimateSamsung(server)Hynix(server)Samsung(mobile)Hynix(mobile)50%70%60%40%50%30%40%20%30%20%10%10%0%0%4Q161Q172Q17e3Q17e4Q17e4Q161Q172Q17e3Q17e4Q17eSource:Companydata,HSBCestimatesSource:Companydata,HSBCestimatesTable2.GlobalpeercomparisonCompanyTickerSharepriceMktcap____P/B(x)________ROE(%)____EV/EBITDA(x)_______P/E(x)_____EPSgrowth(%)_(local)(USDm)17e18e19e17e18e19e17e18e19e17e18e19e17e18e19eSKHynix000660KS69,20044,4281.51.21.033.525.819.22.62.22.05.25.15.7227.60.9-10.4MicronMUUS32.5035,9552.11.61.430.226.716.84.74.25.07.56.07.8TTB27.7-15.3SamsungElectronics005930KS2,415,000278,2931.51.31.219.519.216.93.02.42.18.27.17.380.916.4-2.6SKHynixandSamsungElectronicsratedBuy.MicronnotratedbyHSBC,BloombergconsensususedSource:Bloomberg,HSBCestimatesSamsungElectronics:better2QduetorobustDRAMandOLEDGreaterimpactfromrisingserverDRAMcontribution.Aswediscussinthisnote,therisingportionofserverDRAMasapercentageofDRAMsalesishavingagreaterimpactonoverallDRAMASPandprofitabilitybecauseofitspricepremiumtomobileandPCwithbetterprofitability.Weestimateserverwillriseto24%oftotalDRAMsalesin2Qfrom19%in1Q,leadingtoan8%q-o-qriseinDRAMASP(vsourpriorestimateof5%q-o-qincrease)in2Q17.Also,asserverDRAMhasbetterprofitability,weestimateDRAMmarginwillreach59%in2Q17(vsourpriorestimateof57%).Assuch,weexpect2QOPtobe5%betterthanourpreviousestimate,atKRW13.5tn(+37%q-o-q,+67%y-o-y)withsalesofKRW57.6tn(+14%q-o-q,+13%y-o-y).4 EQUITIES●SEMICONDUCTOR28June2017BetterOLEDandLCDmargin.WealsobelievethatOLEDmarginsmightbebetterthanwepreviouslyforecasted,andwenowlookfor19%(vsourpriorestimateof18%)duetoimprovedproductmixtowardshigherendflexibledisplayforGalaxyS8.ASPseemstoberisingsharplyalthoughshipmentisslightlyslowerthanourpreviousexpectationfromweakerJ-seriesdemand.However,overallutilizationofOLEDfabisslightlybetterandthisshouldleadtobettermarginprofile.Inaddition,LCDearningslooktobeimprovingvs1QasTVpanelpriceshaveremainedstable.OnlyITpanelpriceshavebeendecliningsinceearly2Qwhile55”orhigherpricestayedflat,accordingtoIHS.Samsung’sreducedexposuretoITpanelsegmentwillbeanothercatalystforbetterLCDearnings.WeincreaseourTPtoKRW2.8m(fromKRW2.6m)andreiterateourBuyrating.Factoringin6%and8%operatingprofitestimateincreasefor2017e/18efromgreaterimpactfromrisingservercontributionandbetterOLEDandLCDmarginprofile,weraiseourTPtoKRW2.8m(fromKRW2.6m).Ourtargetpricecontinuestobebasedona1.5xPBmultipleappliedto12-monthforwardBVPS(3Q17-2Q18e)ofKRW1.78mrolledoverbyaquarter,toreflectabetterforwardoutlook.WethinkthevaluationisstillattractiveasweseeROErisingto20%in2017e,butthesharesaretradingatonly1.3x2018ebookvalue.On2018ePE,thestocktradesat7.1x(or4.9xexend-2018enetcash).Ournewtargetpriceimplies16%upside;weratethestockBuybecausewesee79%y-o-ygrowthinOPin2017e.Downsiderisksinclude:1)furtherintensecompetitionfromemergingmobilecompaniesandpotentialcompetitioninNAND;and2)weaker-than-expectedsmartphonegrowth,especiallyinthehigh-endsegment.Chart11.SamsungsharepricetrendwithPB/ROE(KRW)(ROE)Samsung(LHS)2.1x1.8x3,000,00030%ROE(RHS)1.4x2,500,0001.1x2,000,00020%1,500,0000.8x1,000,00010%500,00000%20042005200620072008200920102011201220132014201520162017Source:Bloomberg,HSBCestimates5 EQUITIES●SEMICONDUCTOR28June2017Table3.Moreaggressiveshareholderreturnlikelygivenriseinearningsestimates(KRWtn)201520162017e2018eTotalshareholderreturn(new)3.113.313.410.5Dividend(new)3.14.05.910.5Sharebuyback/cancellation(new)-9.3*7.4**-Totalshareholderreturn(previous)3.113.315.810.4Dividend(previous)3.14.05.910.4Sharebuyback/cancellation(previous)-9.39.9-Change(newversusprevious)Totalshareholderreturn0%0%-15%1%Dividend0%0%0%1%Sharebuyback/cancellation0%-25%Keyassumptions(new)DPS(KRW)21,00028,50044,00080,000Dividendpayoutratio16%18%15%23%TotalshareholderreturnportionofFCF24%75%67%31%FCF12.917.719.833.2Netcash58.773.073.095.5ROE11.4%12.7%19.5%19.2%Impliedshareholderreturnyield1.9%4.2%4.2%3.3%Source:HSBCestimates,Companydata*Tobeimplementedin2017e;**tobeimplementedin2018eTable4.SamsungElectronics:HSBCchangestoourestimatesbybusinessunit(KRWbn)__________New_______________________Old____________________Difference_________2017e2018e2019e2017e2018e2019e2017e2018e2019eRevenue236,176262,610266,788228,488251,134253,5643%5%5%DRAM33,82135,37834,88532,53532,64232,1874%8%8%NAND23,31426,31724,92323,31426,31724,9230%0%0%SystemLSI15,63818,18220,00215,63818,18220,0020%0%0%LCD11,1969,6298,93011,1969,6298,9300%0%0%AMOLED23,32128,44929,51523,41528,44929,5150%0%0%Harman8,5228,74010,526Telecom105,172118,779119,490105,172118,779119,4900%0%0%Digitalmedia44,45845,13646,51644,45845,13646,5160%0%0%OP52,38958,44157,01249,62154,04252,6786%8%8%DRAM20,10521,12620,19518,40817,95917,1909%18%17%NAND9,3629,6768,1539,3629,6768,1530%0%0%SystemLSI1,4081,8802,0561,3311,8802,0566%0%0%LCD1,5581,1931,1831,27685687522%39%35%AMOLED4,8956,4286,9674,8406,4286,9671%0%0%Harman6568951,022Telecom13,07816,03016,21313,07816,03016,2130%0%0%Digitalmedia1,4851,2131,2231,4851,2131,2230%0%0%OPM22%22%21%22%22%21%DRAM59%60%58%57%55%53%NAND40%37%33%40%37%33%SystemLSI9%10%10%9%10%10%LCD14%12%13%11%9%10%AMOLED21%23%24%21%23%24%Harman8%10%10%Telecom12%13%14%12%13%14%Digitalmedia3%3%3%3%3%3%Source:Companydata,HSBCestimates6 EQUITIES●SEMICONDUCTOR28June2017Table5.SamsungElectronics:Quarterlyearningstrend(KRWbn)1Q17a2Q17e3Q17e4Q17e1Q18e2Q18e3Q18e4Q18e20162017e2018e2019eRevenue50,55157,59661,95066,07960,77563,88367,63270,320201,877236,176262,610266,788DRAM7,1658,3259,0479,2848,4328,5899,1709,18722,16333,82135,37834,885NAND4,9555,5316,2636,5646,4746,4876,7096,64915,69523,31426,31724,923SystemLSI3,5403,6114,0804,4074,1864,3964,9234,67713,30815,63818,18220,002LCD2,8472,6752,9432,7312,2492,4052,5942,38011,32911,1969,6298,930AMOLED4,4434,9306,2907,6586,9567,0987,0667,32915,61223,32128,44929,515Harman2,2422,0172,2372,0162,2802,1072,3376,4978,74010,526Telecom23,50026,15727,57627,93927,87128,19431,33631,379100,312105,172118,779119,490Digitalmedia10,34011,12510,73412,2589,59111,43511,22712,88347,05444,45845,13646,516OP9,90113,55414,56714,36613,58514,31315,55814,98429,23352,38958,44157,012DRAM3,9874,9315,5215,6664,9945,0115,5965,5249,00220,10521,12620,195NAND1,9932,2722,6272,4702,3802,3282,5242,4443,7759,3629,6768,153SystemLSI3303614083083354405915148171,4081,8802,056LCD456472379251257332361242(573)1,5581,1931,183AMOLED8449401,2651,8451,4201,5291,6011,8782,8034,8956,4286,967Harman2202072292072342162396568951,022Telecom2,0703,9773,8633,1683,7524,0814,4463,75010,81413,07816,03016,213Digitalmedia3803802974282403582223912,6341,4851,2131,223OPM20%24%24%22%22%22%23%21%14%22%22%21%DRAM56%59%61%61%59%58%61%60%41%59%60%58%NAND40%41%42%38%37%36%38%37%24%40%37%33%SystemLSI9%10%10%7%8%10%12%11%6%9%10%10%LCD16%18%13%9%11%14%14%10%-5%14%12%13%AMOLED19%19%20%24%20%22%23%26%18%21%23%24%Harman10%10%10%10%10%10%10%10%10%10%Telecom9%15%14%11%13%14%14%12%11%12%13%14%Digitalmedia4%3%3%3%3%3%2%3%6%3%3%3%Source:Companydata,HSBCestimates7 EQUITIES●SEMICONDUCTOR28June2017Table6.SamsungElectronics:Quarterlyearningstrend(KRWbn)1Q17a2Q17e3Q17e4Q17e1Q18e2Q18e3Q18e4Q18e20162017e2018e2019eTotalsales50,55157,59661,95066,07960,77563,88367,63270,320201,877236,176262,610266,788DeviceSolution22,95027,31430,64032,88230,31231,25532,56932,55878,167113,786126,695128,781Semiconductor15,66017,46719,39020,25519,09219,47120,80220,51351,16672,77279,87879,810DRAM7,1658,3259,0479,2848,4328,5899,1709,18722,16333,82135,37834,885NAND4,9555,5316,2636,5646,4746,4876,7096,64915,69523,31426,31724,923SystemLSI3,5403,6114,0804,4074,1864,3964,9234,67713,30815,63818,18220,002Display7,2907,6059,23310,3899,2059,5049,6609,70926,94134,51738,07738,445LCD2,8472,6752,9432,7312,2492,4052,5942,38011,32911,1969,6298,930AMOLED4,4434,9306,2907,6586,9567,0987,0667,32915,61223,32128,44929,515Harman2,2422,0172,2372,0162,2802,1072,3378,5228,74010,526IM23,50026,15727,57627,93927,87128,19431,33631,379100,312105,172118,779119,490Mobile22,47025,43626,78327,06627,08627,42430,48930,44897,755101,755115,447115,934CE10,34011,12510,73412,2589,59111,43511,22712,88347,05444,45845,13646,516TV6,4606,4526,3678,0225,4826,3816,3758,17628,72127,30126,41525,717Salesbreakdown(%)DeviceSolution454749505049484639484848Semiconductor313031313130312925313030DRAM141415141413141311141313NAND101010101110109810109SystemLSI767777777777Display141315161515141413151414LCD655444436543AMOLED991012111110108101111Harman4333433334IM464545424644464550454545Mobile444443414543454348434443CE201917191618171823191717TV201715161515141621171515Operatingprofit9,90113,55414,56714,36613,58514,31315,55814,98429,23352,38958,44157,012DeviceSolution7,6109,19710,40710,7709,5939,87310,89010,84315,87937,98441,19839,576Semiconductor6,3107,5648,5568,4447,7097,7798,7118,48313,59430,87532,68230,404DRAM3,9874,9315,5215,6664,9945,0115,5965,5249,00220,10521,12620,195NAND1,9932,2722,6272,4702,3802,3282,5242,4443,7759,3629,6768,153SystemLSI3303614083083354405915148171,4081,8802,056Display1,3001,4121,6442,0961,6771,8611,9622,1212,2306,4537,6218,150LCD456472379251257332361242(573)1,5581,1931,183AMOLED8449401,2651,8451,4201,5291,6011,8782,8034,8956,4286,967Harman2202072292072342162396568951,022IM2,0703,9773,8633,1683,7524,0814,4463,75010,81413,07816,03016,213Mobile2,0293,9563,8393,1513,7294,0584,4213,73210,71512,97415,93916,116CE3803802974282403582223912,6341,4851,2131,223TV3802402323651992321742972,0871,216903879OPmargintrend(%)202424222222232114222221DeviceSolution333434333232333320333331Semiconductor404344424040424127424138DRAM565961615958616041596058NAND404142383736383724403733SystemLSI9101078101211691010Display18191820182020228192021LCD161813911141410(5)141213AMOLED191920242022232618212324Harman10101010101010101010IM91514111314141211121314Mobile91614121415141211131414CE433333236333TV744544348544Source:Companydata,HSBCestimates8 EQUITIES●SEMICONDUCTOR28June2017Table7.SamsungElectronics:Keyassumptions1Q17a2Q17e3Q17e4Q17e1Q18e2Q18e3Q18e4Q18e20162017e2018e2019eDRAMShipment(Mpcs/Q,1Gbeq)9,42410,35411,22311,99711,71612,43213,54414,43536,50142,99952,12662,971Bitgrowth(%)(12)1087(2)69736182121ASP(USD,1Gbeq)0.70.70.70.70.70.60.60.60.50.70.60.5q-o-q,y-o-y%2283(4)(7)(4)(2)(6)(29)34(12)(18)OPmargin(%)565961615958616041596058NANDShipment(Mpcs/Q,8Gbeq)15,12816,42418,72821,81223,63726,02728,63731,53354,82372,092109,834159,785Bitgrowth(%)(11)91416810101069315245ASP(USD,8Gbeq)0.30.30.30.30.20.20.20.20.20.30.20.1q-o-q,y-o-y%1252(10)(9)(9)(6)(10)(23)17(25)(35)OPmargin(%)404142383736383724403733SystemLSIRevenue(KRWbn)3,5403,6114,0804,4074,1864,3964,9234,67713,30815,63818,18220,002q-o-q,y-o-y%92138(5)512(5)0181610OPmargin(%)9101078101211691010DisplayLCDmid/largesizepanel(munits)3532353429303231145135123123q-o-q,y-o-y%(18)(9)10(3)(16)66(4)(9)(7)(9)0LCDmid/largesizepanelASP(USD)717577737172736967747166q-o-q,y-o-y%(5)62(5)(2)11(5)(18)10(3)(7)OPmargin(%)161813911141410(5)141213AMOLEDsmallpanel(5.2”munits)123131144153164176190204453552734977q-o-q,y-o-y%661067887113223333AMOLEDsmallpanelASP(USD)313339453836333229373527q-o-q,y-o-y%1072015(15)(5)(8)(3)(11)29(6)(22)OPmargin(%)191920242022232618212324HandsetTotalsmartphone(munits)8080838282818987309325339350q-o-q,y-o-y%504(1)0(1)10(2)(3)543ASP(USD)217256268274277285291296242254287282q-o-q,y-o-y%(3)185213222513(2)Foldablesmartphone(munits)113101212633q-o-q,y-o-y%100200233155,00029ASP(USD)1,0009509038307941,000827965q-o-q,y-o-y%(5)(5)(8)(4)(17)17TabletPC(munits)6667666726252525q-o-q,y-o-y%(25)0(5)20(9)(2)010(25)(6)2(2)ASP(USD)145145142128128128125113157139121103q-o-q,y-o-y%00(2)(10)00(2)(10)(12)(11)(13)(15)Handset&tabletOPmargin(%)91614121415141211131414TVTVshipment(munits)101011161011111548474743q-o-q,y-o-y%(36)0940(33)33351-20-8ASP(USD)546556518466475537521495513515506538q-o-q,y-o-y%112(7)(10)213(3)(5)(5)0(2)6TVOPmargin(%)744544348544Source:Companydata,HSBCestimatesValuation:OurTPisbasedonanunchangedtargetPBmultipleof1.5x,whichisthehistorical10-yearaveragemultiple,appliedtothe12-monthforwardBVPS(3Q17-2Q18e)toreflectnextone-yeargrowth,onanimprovedsmartphoneproductmixthroughhighervalue-addfoldabledisplayanditspositiveimpactonSamsung’scapital-intensivecomponents,suchasmemory,systemLSIandOLEDdisplays.Withc16%upsidetoourtargetprice,wehaveaBuyrating,aswesee79%y-o-ygrowthinOPin2017eandthinkthevaluationisstillattractive.Keydownsiderisks:1)afallindemandcausedbyaglobaleconomicslowdownorappreciationoftheKRW,whichcouldleadtoweakerearnings;2)furtherintensecompetitionfromemergingmobilecompaniesandpotentialcompetitioninNAND;3)fromatechnologyperspective,anyunexpecteddifficultyinmass-producingfoldablesmartphones;4)weaker-than-expectedsmartphonegrowth,especiallyinthehigh-endsegment;and5)weakertractionoffoldablesmartphonesamongendusers.9 EQUITIES●SEMICONDUCTOR28June2017Financials&valuation:SamsungElectronicsBuyFinancialstatementsValuationdataYearto12/2016a12/2017e12/2018e12/2019eYearto12/2016a12/2017e12/2018e12/2019eProfit&losssummary(KRWb)EV/sales1.11.00.80.7Revenue201,867236,176262,610266,788EV/EBITDA4.63.02.42.1EBITDA49,95476,72484,59784,227EV/IC2.41.81.61.4Depreciation&amortisation-20,713-24,336-26,156-27,215PE*14.98.27.17.3Operatingprofit/EBIT29,24152,38958,44157,012PB1.81.51.31.2Netinterest1,4531,1461,9931,845FCFyield(%)6.010.512.213.5PBT30,71453,53460,43458,857Dividendyield(%)1.21.83.34.1HSBCPBT*BasedonHSBCEPS(diluted)Taxation-7,988-13,922-15,717-15,307Netprofit22,72639,61244,71743,551HSBCnetprofit22,72639,61244,71743,551IssuerinformationCashflowsummary(KRWb)Shareprice(KRW)2415000.00Freefloat71%Cashflowfromoperations44,27159,87858,57457,264Targetprice(KRW)2800000.00SectorSemiconductorsCapex-24,143-34,500-32,500-30,000Reuters(Equity)005930.KSCountryKoreaCashflowfrominvestment-29,659-45,979-35,809-33,528Bloomberg(Equity)005930KSAnalystRickySeoDividends-3,989-5,936-10,467-13,084Marketcap(USDm)278,293Contact+82237068777Changeinnetdebt-14,273-35-22,492-23,391FCFequity17,72719,83633,23336,820Balancesheetsummary(KRWb)PricerelativeIntangiblefixedassets5,3445,7406,2016,727Tangiblefixedassets91,473102,859110,522114,738Currentassets141,430141,760167,717190,8922490000.002490000.00Cash&others88,18286,335107,587129,2882290000.002290000.00Totalassets262,174279,179310,860339,4132090000.002090000.00Operatingliabilities53,99440,24846,36352,1401890000.001890000.00Grossdebt15,21713,33512,09510,4051690000.001690000.00Netdebt-72,965-73,000-95,492-118,8831490000.001490000.00Shareholders"funds186,424219,057245,863270,3291290000.001290000.00Investedcapital96,070123,776130,489130,9291090000.001090000.00890000.00890000.00201520162017Ratio,growthandpershareanalysisSamsungElectronicsReltoKOSPIINDEXYearto12/2016a12/2017e12/2018e12/2019eSource:HSBCY-o-y%changeNote:Pricedatcloseof27Jun2017Revenue0.617.011.21.6EBITDA5.553.610.3-0.4Operatingprofit10.779.211.6-2.4PBT18.374.312.9-2.6HSBCEPS26.880.916.4-2.6Ratios(%)Revenue/IC(x)2.12.12.12.0ROIC22.735.334.032.3ROE12.719.519.216.9ROA12.216.817.115.2EBITDAmargin24.732.532.231.6Operatingprofitmargin14.522.222.321.4EBITDA/netinterest(x)Netdebt/equity-37.8-32.4-37.8-42.9Netdebt/EBITDA(x)-1.5-1.0-1.1-1.4CFfromoperations/netdebtPersharedata(KRW)EPSRep(diluted)162351.76293636.89341780.24332865.17HSBCEPS(diluted)162351.76293636.89341780.24332865.17DPS28500.0044000.0080000.00100000.00Bookvalue1331786.631623830.401879175.482066175.6010 EQUITIES●SEMICONDUCTOR28June2017SKHynix:better2QduetogreaterimpactfromserverGreaterimpactfromrisingserverDRAMportion.Aswediscussinthisnote,therisingportionofserverDRAMasapercentageofsalesishavingagreaterimpactonoverallDRAMASPandprofitabilitybecauseofitspricepremiumtomobileandPCwithbetterprofitability.Weestimateserverportionwillrisetomid-30%oftotalDRAMsalesin2Qfrom30%in1Q,leadingtoa10%q-o-qincreaseinDRAMASP(vsourpriorestimateof7%q-o-q)in2Q17.Also,asserverDRAMhasbetterprofitabilityweestimateDRAMmarginwillreachto53%in2Q17(vsourpriorestimateof51%).Assuch,weexpect2QOPtobe6%betterthanourpreviousestimate,atKRW3.1tn(+25%q-o-q,+579%y-o-y)withsalesofKRW7.0tn(+11%q-o-q,+78%y-o-y).WeincreaseourTPtoKRW86,000(fromKRW75,000)andreiterateourBuyrating.Factoringin8%and14%operatingprofitestimateincreasefor2017e/18efromgreaterimpactfromrisingservercontribution,weraiseupTPtoKRW86,000.Our2017eoperatingprofitestimateis4%higherthantheStreetaswearemorepositiveonthememorypriceoutlook.Ourtargetpricecontinuestobebasedona1.6xPBmultipleappliedto12-monthBVPS(3Q17-2Q18e)from2017epreviously,toreflectthenextoneyearofgrowth.Wethinkthestockissignificantlyundervalued,tradingat1.2x2018ebook,whileROEisimprovingto33%from13%in2016.Chart12.HynixsharepricetrendwithPB/ROE(KRW)Hynix(LHS)3.0x2.5x2.0x(ROE)90,00040%ROE(RHS)1.5x80,00030%70,00060,00020%50,0001.0x10%40,00030,0000%20,0000.5x-10%10,0000-20%20072008200920102011201220132014201520162017Source:Bloomberg,HSBCestimatesTable8.SKHynix:Changestoearningsestimates(KRWbn)__________Revised_____________________Previous_____________________Changes___________2017e2018e2019e2017e2018e2019e2017e2018e2019eRevenue28,69629,75429,19928,07128,21527,6422%5%6%DRAM21,01521,39721,23420,18219,75419,6044%8%8%NAND7,6818,3577,9657,8898,4608,039-3%-1%-1%OP12,45912,58711,27811,52111,0259,8148%14%15%DRAM11,11610,79310,01910,0919,1268,46610%18%18%NAND1,5361,8611,3251,6221,9641,414-5%-5%-6%OPM43%42%39%41%39%36%DRAM53%50%47%50%46%43%NAND20%22%17%21%23%19%Source:HSBCestimates11 EQUITIES●SEMICONDUCTOR28June2017Table9.SKHynix:Quarterlyearningsandkeyassumptions1Q172Q17e3Q17e4Q17e1Q18e2Q18e3Q18e4Q18e20162017e2018e2019eSales(KRWbn)6,2907,0047,6577,7447,1967,2527,6367,67017,19928,69629,75429,199Growthq-o-q,y-o-y171191(7)150(9)674(2)DRAM4,6135,2025,6035,5975,1675,2035,5285,49912,37221,01521,39721,234NANDFlash&others1,6771,8022,0552,1472,0292,0492,1082,1714,8277,6818,3577,965Salesbreakdown(%)DRAM737473727272727272737273NANDFlash&others272627282828282828272827OP(KRWbn)2,4683,0783,4763,4373,0122,9503,3123,3143,27712,45912,58711,278Growthq-o-q,y-o-y612513(1)(12)(2)120(39)2801(10)DRAM2,2112,7533,0773,0742,6312,5462,8152,8013,31011,11610,79310,019NANDFlash320369444403397421513529311,5361,8611,325OPM(%)394445444241434319434239DRAM485355555149515127535047NANDFlash21222320212226261212418EBITDA3,6324,3284,8444,9844,5624,5124,8704,8747,73317,78818,81817,865Depreciation&amortization1,1641,2511,3681,5471,5511,5621,5571,5604,4565,3296,2316,587EBITDAmargin(%)586263646362646445626361KeyassumptionsDRAMshipment(munits,1Gb)5,2605,5085,8066,0976,1186,5537,1787,44918,76922,67127,29933,274Growthq-o-q,y-o-y(4)5550710425212022BlendedDRAMASP(USD,1Gb)0.80.80.90.80.80.70.70.70.60.80.70.6Growthq-o-q,y-o-y25104(4)(8)(6)(3)(5)(31)45(14)(19)NANDshipment(munits,8Gb)5,2885,5516,3647,4737,5318,1848,7869,75919,39724,67734,26048,848Growthq-o-q,y-o-y(3)515171971145273943BlendedNANDASP(USD,8Gb)0.30.30.30.20.20.20.20.20.20.30.20.1Growthq-o-q,y-o-y1572(10)(7)(7)(4)(8)(31)32(20)(33)Source:Companydata,HSBCestimatesValuation:OurtargetpriceofKRW86,000isbasedonanunchangedtargetPBmultipleof1.6x,inlinewiththehistorical10-yearaveragemultiple,appliedtothe12-monthforwardBVPStoreflectnextone-yeargrowth,whichwebelieveisjustifiedconsideringtheROEimprovementaswellasthedemand-drivenDRAMupcycleuntil2017e.Ourtargetpriceimplies24%upsideandwehaveaBuyrating.Keydownsiderisks:1)greater-than-expectedKRWappreciation;2)weaknessintheJPYwhichcouldunderminecompetitiveness;and3)afallinPCdemandcausedbyaglobaleconomicslowdown.12 EQUITIES●SEMICONDUCTOR28June2017Financials&valuation:SKHynixInc.BuyFinancialstatementsValuationdataYearto12/2016a12/2017e12/2018e12/2019eYearto12/2016a12/2017e12/2018e12/2019eProfit&losssummary(KRWb)EV/sales2.91.61.41.2Revenue17198.028696.029754.229198.5EV/EBITDA6.52.62.22.0EBITDA7733.217788.218818.117865.1EV/IC2.21.61.31.1Depreciation&amortisation-4456.5-5329.2-6230.7-6587.0PE*17.05.25.15.7Operatingprofit/EBIT3276.812459.012587.411278.1PB2.11.51.21.0Netinterest-86.0-49.122.461.5FCFyield(%)0.38.414.316.4PBT3216.412435.212553.111242.3Dividendyield(%)0.92.62.52.2HSBCPBT0.00.00.00.0*BasedonHSBCEPS(diluted)Taxation-256.0-2735.7-2761.7-2473.3Netprofit2960.59699.59791.48769.0HSBCnetprofit2960.59699.59791.48769.0IssuerinformationCashflowsummary(KRWb)Shareprice(KRW)69200.00Freefloat71%Cashflowfromoperations5125.311843.913406.413978.1Targetprice(KRW)86000.00SectorSemiconductorsCapex-5794.2-8000.0-7500.0-7000.0Reuters(Equity)000660.KSCountryKoreaCashflowfrominvestment-6230.4-8502.0-8548.0-8352.7Bloomberg(Equity)000660KSAnalystRickySeoDividends-436.8-1310.4-1237.6-1092.0Marketcap(USDm)44427.6Contact+82237068777Changeinnetdebt1173.6-3988.5-4797.7-5494.7FCFequity138.04212.77201.58240.0Balancesheetsummary(KRWb)PricerelativeIntangiblefixedassets1915.62491.93471.44598.6Tangiblefixedassets18777.421725.123380.024304.0Currentassets9839.014861.617999.023555.469000.0069000.00Cash&others4138.86423.98589.114083.859000.0059000.00Totalassets32216.040997.546995.654804.2Operatingliabilities3851.84386.54996.55336.249000.0049000.00Grossdebt4336.02632.60.00.0Netdebt197.2-3791.4-8589.1-14083.839000.0039000.00Shareholders"funds24017.033971.941992.549461.329000.0029000.00Investedcapital22541.328268.231264.833038.119000.0019000.00201520162017Ratio,growthandpershareanalysisSKHynixInc.ReltoKOSPIINDEXYearto12/2016a12/2017e12/2018e12/2019eSource:HSBCY-o-y%changeNote:Pricedatcloseof27Jun2017Revenue-8.566.93.7-1.9EBITDA-16.8130.05.8-5.1Operatingprofit-38.6280.21.0-10.4PBT-39.0286.60.9-10.4HSBCEPS-31.5227.60.9-10.4Ratios(%)Revenue/IC(x)0.81.11.00.9ROIC14.538.333.027.4ROE13.033.525.819.2ROA9.626.522.317.2EBITDAmargin45.062.063.261.2Operatingprofitmargin19.143.442.338.6EBITDA/netinterest(x)90.0362.6Netdebt/equity0.8-11.2-20.5-28.5Netdebt/EBITDA(x)0.0-0.2-0.5-0.8CFfromoperations/netdebt2599.7Persharedata(KRW)EPSRep(diluted)4066.613323.413449.712045.3HSBCEPS(diluted)4066.613323.413449.712045.3DPS600.01800.01700.01500.0Bookvalue32990.246664.657681.967941.213 EQUITIES●SEMICONDUCTOR28June2017AppendixDRAMmarketforecastassumptionsTable10.DRAMassumptions(mnunit)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eMemorycontentperbox(MB/Unit)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eDesktop4,9985,1475,3025,6205,6765,7335,8195,9354,8885,2725,7926,240Notebook5,0705,2225,3785,6315,7445,8595,9766,0954,9585,3355,9296,409Ultrabookusingmobile7,0707,1417,2127,2847,3577,4317,5057,5806,8307,1867,4757,785DRAMTabletPC1,8621,8991,9371,9962,0162,0562,0972,1601,7951,9302,0902,262Server/Workstation130,249141,972154,749168,676183,857196,727208,531218,958109,561149,816202,827261,292Handset1,3261,5261,7351,9912,0392,1122,1372,2221,1211,6632,1332,452Growth(%)Desktop1336111248108Notebook1335222258118Ultrabookusingmobile1111111118544DRAMTabletPC1223122315888Server/Workstation9999976534373529Handset15151415241422482815DRAMDemand(1Gbequiv.)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eDesktop1,0051,0291,1251,1961,1281,1481,1881,2274,4224,3554,6914,866Notebook9559671,0651,1879329811,1651,2084,5534,1744,2864,592Ultrabookusingmobile3944395715345756226767281,2131,9392,6023,033DRAMTabletPC7127918461,0917328559181,1812,8843,4403,6863,990Server/Workstation4,0074,4335,1806,0986,1086,6347,5388,54813,76119,71828,82940,108Handset4,3235,3346,8267,8456,4487,0978,2778,83916,45124,32830,66134,667Total13,75315,93219,85221,50320,92321,02021,99722,91353,36471,04086,853105,753Growth(%)Desktop(13)296(6)233(10)(2)84Notebook(19)11012(22)5194(12)(8)37Ultrabookusingmobile(3)1130(7)8898187603417DRAMTabletPC(18)11729(33)1772951978Server/Workstation411171809141343434639Handset(4)232815(18)1017723482613Total(0)16258(3)05412332222Demandbitgrowth(%)(0)16258(3)05414402222Supplybitgrowth(%)(4)182047751919261920SupplySufficiencyratio(munit,1Gbequiv.)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eSupply(munit.)13,82116,35419,59720,37318,87020,13221,50022,62955,72270,14583,131100,056Demand(munit)13,75315,93219,85221,50320,92321,02021,99722,91353,36471,04086,853105,753SupplySufficiency0.52.7(1.3)(5.3)(9.8)(4.2)(2.3)(1.2)4.4(1.3)(4.3)(5.4)DRAMBlendedASP(USD)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018e1GBequipvalent0.60.50.50.60.70.70.70.70.80.50.70.6yoy%(37)(40)(35)(25)19384326(15)(35)31(16)qoq%(23)(10)(1)92343(4)DRAMmarket(USDmn)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eDRAMmarketrevenue8,5359,19110,76012,69314,37816,08517,32917,34144,97041,17965,13268,017yoy%(28)(20)(6)2768756137(4)(8)584qoq%(15)81718131280Source:WSTS,HSBCestimates14 EQUITIES●SEMICONDUCTOR28June2017Chart13:DRAMdemandforecastChart14:DRAMdemandbyapplication(bnunits,1Gbchip)40%MobileDRAMPCDRAMServerGraphic150.022%22%40%14%100%20%7%6%9%10%120.01060%80%25%26%90.087-20%33%38%7140.1-40%60%60.05319.728.8-60%21%16%10%9%13.8-80%40%30.029.736.941.720.5-100%-11.512.29.09.5-120%20%38%39%43%39%201520162017e2018ePCDRAMMobileDRAM0%ServerGraphicYoYdemandgrowth201520162017e2018eSource:WSTS,HSBCestimatesSource:WSTS,HSBCestimatesTable11.DRAMdemandforecastsbyapplication(mnunit,1Gbequiv.)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018ePCDRAM2,7602,8963,0903,4842,0592,1302,3532,43511,47612,2298,9779,458MobileDRAM5,4296,5658,2439,4707,7558,5749,87210,74920,54929,70736,95041,690Server4,0074,4335,1806,0986,1086,6347,5388,54813,76119,71828,82940,108Graphic1,0441,0741,2111,4631,5221,6831,9342,4813,9784,7927,61910,397Totaldemand13,75315,93219,85221,50320,92321,02021,99722,91353,36471,04086,853105,753PortionofDRAMdemandtotalPCDRAM19%16%15%15%10%10%11%11%21%16%10%9%MobileDRAM37%37%39%42%37%41%45%47%38%39%43%39%Server27%25%25%27%29%32%34%37%25%26%33%38%Graphic7%6%6%6%7%8%9%11%7%6%9%10%y-o-ygrowthPCDRAM-8%7%-27%5%MobileDRAM24%45%24%13%Server43%43%46%39%Graphic18%20%59%36%Total14%40%22%22%Source:WSTS,HSBCestimatesTable12.:DRAMsupplybitgrowthforecastsbycompany(mnunits-1Gbequiv.)1Q162Q163Q164Q161Q172Q17e3Q17e4Q17e201520162017e2018eSamsung7,0008,32910,52110,6519,42410,35411,22311,99726,74936,50142,99952,126SKHynix3,8534,5294,8845,5035,2605,5085,8066,03115,05018,76922,60427,299Micron2,5503,1113,7333,7333,7703,8454,0384,15910,15113,12615,81218,865Nanya4183864594864164254334421,4521,7491,7161,767Total13,82116,35419,59720,37318,87020,13221,50022,62955,72270,14583,131100,056Growth(%)SEC(1)19261(12)108730361821Hynix(3)18813(4)55423252021Micron0222001253(3)292019Nanya1(8)196(14)2221620(2)3Total(4)18204(7)77519261920Source:Companydata,HSBCestimates15 EQUITIES●SEMICONDUCTOR28June2017DisclosureappendixAnalystCertificationThefollowinganalyst(s),economist(s),and/orstrategist(s)whois(are)primarilyresponsibleforthisreport,certifies(y)thattheopinion(s)onthesubjectsecurity(ies)orissuer(s)and/oranyotherviewsorforecastsexpressedhereinaccuratelyreflecttheirpersonalview(s)andthatnopartoftheircompensationwas,isorwillbedirectlyorindirectlyrelatedtothespecificrecommendation(s)orviewscontainedinthisresearchreport:RickySeoandKennethShimImportantdisclosuresEquities:StockratingsandbasisforfinancialanalysisHSBCbelievesaninvestor"sdecisiontobuyorsellastockshoulddependonindividualcircumstancessuchastheinvestor"sexistingholdings,risktoleranceandotherconsiderationsandthatinvestorsutilisevariousdisciplinesandinvestmenthorizonswhenmakinginvestmentdecisions.Ratingsshouldnotbeusedorreliedoninisolationasinvestmentadvice.Differentsecuritiesfirmsuseavarietyofratingstermsaswellasdifferentratingsystemstodescribetheirrecommendationsandthereforeinvestorsshouldcarefullyreadthedefinitionsoftheratingsusedineachresearchreport.Further,investorsshouldcarefullyreadtheentireresearchreportandnotinferitscontentsfromtheratingbecauseresearchreportscontainmorecompleteinformationconcerningtheanalysts"viewsandthebasisfortherating.From23rdMarch2015HSBChasassignedratingsonthefollowingbasis:Thetargetpriceisbasedontheanalyst’sassessmentofthestock’sactualcurrentvalue,althoughweexpectittotakesixto12monthsforthemarketpricetoreflectthis.Whenthetargetpriceismorethan20%abovethecurrentshareprice,thestockwillbeclassifiedasaBuy;whenitisbetween5%and20%abovethecurrentshareprice,thestockmaybeclassifiedasaBuyoraHold;whenitisbetween5%belowand5%abovethecurrentshareprice,thestockwillbeclassifiedasaHold;whenitisbetween5%and20%belowthecurrentshareprice,thestockmaybeclassifiedasaHoldoraReduce;andwhenitismorethan20%belowthecurrentshareprice,thestockwillbeclassifiedasaReduce.Ourratingsarere-calibratedagainstthesebandsatthetimeofany"materialchange"(initiationorresumptionofcoverage,changeintargetpriceorestimates).Upside/Downsideisthepercentagedifferencebetweenthetargetpriceandtheshareprice.Priortothisdate,HSBC’sratingstructurewasappliedonthefollowingbasis:Foreachstockwesetarequiredrateofreturncalculatedfromthecostofequityforthatstock’sdomesticor,asappropriate,regionalmarketestablishedbyourstrategyteam.Thetargetpriceforastockrepresentedthevaluetheanalystexpectedthestocktoreachoverourperformancehorizon.Theperformancehorizonwas12months.ForastocktobeclassifiedasOverweight,thepotentialreturn,whichequalsthepercentagedifferencebetweenthecurrentsharepriceandthetargetprice,includingtheforecastdividendyieldwhenindicated,hadtoexceedtherequiredreturnbyatleast5percentagepointsoverthesucceeding12months(or10percentagepointsforastockclassifiedasVolatile*).ForastocktobeclassifiedasUnderweight,thestockwasexpectedtounderperformitsrequiredreturnbyatleast5percentagepointsoverthesucceeding12months(or10percentagepointsforastockclassifiedasVolatile*).StocksbetweenthesebandswereclassifiedasNeutral.*Astockwasclassifiedasvolatileifitshistoricalvolatilityhadexceeded40%,ifthestockhadbeenlistedforlessthan12months(unlessitwasinanindustryorsectorwherevolatilityislow)oriftheanalystexpectedsignificantvolatility.However,stockswhichwedidnotconsidervolatilemayinfactalsohavebehavedinsuchaway.Historicalvolatilitywasdefinedasthepastmonth"saverageofthedaily365-daymovingaveragevolatilities.Inordertoavoidmisleadinglyfrequentchangesinrating,however,volatilityhadtomove2.5percentagepointspastthe40%benchmarkineitherdirectionforastock"sstatustochange.16 EQUITIES●SEMICONDUCTOR28June2017Ratingdistributionforlong-terminvestmentopportunitiesAsof27June2017,thedistributionofallindependentratingspublishedbyHSBCisasfollows:Buy44%(26%oftheseprovidedwithInvestmentBankingServices)Hold41%(26%oftheseprovidedwithInvestmentBankingServices)Sell15%(17%oftheseprovidedwithInvestmentBankingServices)Forthepurposesofthedistributionabovethefollowingmappingstructureisusedduringthetransitionfromtheprevioustocurrentratingmodels:underourpreviousmodel,Overweight=Buy,Neutral=HoldandUnderweight=Sell;underourcurrentmodelBuy=Buy,Hold=HoldandReduce=Sell.Forratingdefinitionsunderbothmodels,pleasesee“Stockratingsandbasisforfinancialanalysis”above.Forthedistributionofnon-independentratingspublishedbyHSBC,pleaseseethedisclosurepageavailableathttp://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.Sharepriceandratingchangesforlong-terminvestmentopportunitiesSamsungElectronics(005930.KS)sharepriceRating&targetpricehistoryperformanceKRWVsHSBCratinghistoryFromToDateAnalystOverweightBuy25Mar2015RickySeoTargetpriceValueDateAnalyst2467000Price11700000.0008Jul2014RickySeo2267000Price21500000.0002Sep2014RickySeoPrice31450000.0024Sep2014RickySeo2067000Price41600000.0008Jan2015RickySeo1867000Price51700000.0026Jan2015RickySeo1667000Price61850000.0016Mar2015RickySeoPrice71800000.0007Jul2015RickySeo1467000Price81700000.0030Jul2015RickySeo1267000Price92000000.0004Jan2016RickySeoPrice101900000.0015Mar2016RickySeo1067000Price111950000.0010Jun2016RickySeoPrice122000000.0019Aug2016RickySeoJun-12Jun-13Jun-14Jun-15Jun-16Jun-17Price131950000.0012Sep2016RickySeoSource:HSBCPrice142000000.0007Oct2016RickySeoPrice151950000.0012Oct2016RickySeoPrice162150000.0011Nov2016RickySeoPrice172200000.0003Jan2017RickySeoPrice182250000.0006Jan2017RickySeoPrice192300000.0024Jan2017RickySeoPrice202400000.0009Mar2017RickySeoPrice212500000.0028Mar2017RickySeoPrice222550000.0007Apr2017RickySeoPrice232600000.0027Apr2017RickySeoSource:HSBC17 EQUITIES●SEMICONDUCTOR28June2017SKHynixInc.(000660.KS)sharepriceperformanceKRWRating&targetpricehistoryVsHSBCratinghistoryFromToDateAnalystOverweightBuy30Mar2015RickySeoTargetpriceValueDateAnalyst70250Price160000.0024Jul2014RickySeoPrice265000.0012Oct2014RickySeo60250Price370000.0008Dec2014RickySeoPrice467000.0010Jun2015RickySeo50250Price563000.0023Jul2015RickySeoPrice651000.0002Sep2015RickySeo40250Price749000.0017Dec2015RickySeoPrice842000.0018Feb2016RickySeo30250Price941000.0026Apr2016RickySeoPrice1053000.0021Sep2016RickySeo20250Price1154000.0025Oct2016RickySeoPrice1258000.0011Nov2016RickySeoJun-12Jun-13Jun-14Jun-15Jun-16Jun-17Price1362000.0003Jan2017RickySeoSource:HSBCPrice1470000.0026Jan2017RickySeoPrice1572000.0023Mar2017RickySeoPrice1675000.0025Apr2017RickySeoSource:HSBCToviewalistofalltheindependentfundamentalratingsdisseminatedbyHSBCduringthepreceding12-monthperiod,pleaseusethefollowinglinkstoaccessthedisclosurepage:ClientsofGlobalResearchandGlobalBankingandMarkets:www.research.hsbc.com/A/DisclosuresClientsofHSBCPrivateBanking:www.research.privatebank.hsbc.com/DisclosuresHSBC&AnalystdisclosuresDisclosurechecklistCompanyTickerRecentpricePricedateDisclosureSKHYNIXINC.000660.KS69200.0027Jun20174,7Source:HSBC1HSBChasmanagedorco-managedapublicofferingofsecuritiesforthiscompanywithinthepast12months.2HSBCexpectstoreceiveorintendstoseekcompensationforinvestmentbankingservicesfromthiscompanyinthenext3months.3Atthetimeofpublicationofthisreport,HSBCSecurities(USA)Inc.isaMarketMakerinsecuritiesissuedbythiscompany.4Asof31May2017HSBCbeneficiallyowned1%ormoreofaclassofcommonequitysecuritiesofthiscompany.5Asof30April2017,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofinvestmentbankingservices.6Asof30April2017,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofnon-investmentbankingsecurities-relatedservices.7Asof30April2017,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofnon-securitiesservices.8Acoveringanalyst/shasreceivedcompensationfromthiscompanyinthepast12months.9Acoveringanalyst/soramemberofhis/herhouseholdhasafinancialinterestinthesecuritiesofthiscompany,asdetailedbelow.10Acoveringanalyst/soramemberofhis/herhouseholdisanofficer,directororsupervisoryboardmemberofthiscompany,asdetailedbelow.11Atthetimeofpublicationofthisreport,HSBCisanon-USMarketMakerinsecuritiesissuedbythiscompanyand/orinsecuritiesinrespectofthiscompany12Asof22Jun2017,HSBCbeneficiallyheldanetlongpositionofmorethan0.5%ofthiscompany’stotalissuedsharecapital,calculatedaccordingtotheSSRmethodology.13Asof22Jun2017,HSBCbeneficiallyheldanetshortpositionofmorethan0.5%ofthiscompany’stotalissuedsharecapital,calculatedaccordingtotheSSRmethodology.18 EQUITIES●SEMICONDUCTOR28June2017HSBCanditsaffiliateswillfromtimetotimeselltoandbuyfromcustomersthesecurities/instruments,bothequityanddebt(includingderivatives)ofcompaniescoveredinHSBCResearchonaprincipaloragencybasis.Analysts,economists,andstrategistsarepaidinpartbyreferencetotheprofitabilityofHSBCwhichincludesinvestmentbanking,sales&trading,andprincipaltradingrevenues.Whether,orinwhattimeframe,anupdateofthisanalysiswillbepublishedisnotdeterminedinadvance.EconomicsanctionsimposedbytheEUandOFACprohibittransactingordealinginnewdebtorequityofRussianSSIentities.ThisreportdoesnotconstituteadviceinrelationtoanysecuritiesissuedbyRussianSSIentitiesonorafterJuly162014andassuch,thisreportshouldnotbeconstruedasaninducementtotransactinanysanctionedsecurities.Fordisclosuresinrespectofanycompanymentionedinthisreport,pleaseseethemostrecentlypublishedreportonthatcompanyavailableatwww.hsbcnet.com/research.HSBCPrivateBankingclientsshouldcontacttheirRelationshipManagerforqueriesregardingotherresearchreports.Inordertofindoutmoreabouttheproprietarymodelsusedtoproducethisreport,pleasecontacttheauthoringanalyst.Additionaldisclosures1.Thisreportisdatedasat28June2017.2.Allmarketdataincludedinthisreportaredatedasatclose27June2017,unlessadifferentdateand/oraspecifictimeofdayisindicatedinthereport.3.HSBChasproceduresinplacetoidentifyandmanageanypotentialconflictsofinterestthatariseinconnectionwithitsResearchbusiness.HSBC"sanalystsanditsotherstaffwhoareinvolvedinthepreparationanddisseminationofResearchoperateandhaveamanagementreportinglineindependentofHSBC"sInvestmentBankingbusiness.InformationBarrierproceduresareinplacebetweentheInvestmentBanking,PrincipalTrading,andResearchbusinessestoensurethatanyconfidentialand/orpricesensitiveinformationishandledinanappropriatemanner.4.Youarenotpermittedtouse,forreference,anydatainthisdocumentforthepurposeof(i)determiningtheinterestpayable,orothersumsdue,underloanagreementsorunderotherfinancialcontractsorinstruments,(ii)determiningthepriceatwhichafinancialinstrumentmaybeboughtorsoldortradedorredeemed,orthevalueofafinancialinstrument,and/or(iii)measuringtheperformanceofafinancialinstrument.Production&distributiondisclosures1.Thisreportwasproducedandsignedoffbytheauthoron27Jun201715:46GMT.2.Inordertoseewhenthisreportwasfirstdisseminatedpleaseseethedisclosurepageavailableathttps://www.research.hsbc.com/R/34/xpkFbNC19 EQUITIES●SEMICONDUCTOR28June2017DisclaimerLegalentitiesasat1July2016Issuerofreport‘UAE’HSBCBankMiddleEastLimited,Dubai;‘HK’TheHongkongandShanghaiBankingCorporationLimited,HongTheHongkongandShanghaiBankingCorporationKong;‘TW’HSBCSecurities(Taiwan)CorporationLimited;"CA"HSBCSecurities(Canada)Inc.;HSBCBank,ParisLimited,SeoulSecuritiesBranchBranch;HSBCFrance;‘DE’HSBCTrinkaus&BurkhardtAG,Düsseldorf;000HSBCBank(RR),Moscow;‘IN’HSBC7thFloor,HSBCBuildingSecuritiesandCapitalMarkets(India)PrivateLimited,Mumbai;‘JP’HSBCSecurities(Japan)Limited,Tokyo;‘EG’HSBC25,1-ka,Bongrae-dongSecuritiesEgyptSAE,Cairo;‘CN’HSBCInvestmentBankAsiaLimited,BeijingRepresentativeOffice;TheHongkongandChung-ku,Seoul100-161,KoreaShanghaiBankingCorporationLimited,SingaporeBranch;TheHongkongandShanghaiBankingCorporationLimited,Telephone:+82237068700/3SeoulSecuritiesBranch;TheHongkongandShanghaiBankingCorporationLimited,SeoulBranch;HSBCSecuritiesFax:+82237068797(SouthAfrica)(Pty)Ltd,Johannesburg;HSBCBankplc,London,Madrid,Milan,Stockholm,TelAviv;‘US’HSBCWebsite:www.research.hsbc.comSecurities(USA)Inc,NewYork;HSBCYatirimMenkulDegerlerAS,Istanbul;HSBCMéxico,SA,InstitucióndeBancaMúltiple,GrupoFinancieroHSBC;HSBCBankAustraliaLimited;HSBCBankArgentinaSA;HSBCSaudiArabiaLimited;TheHongkongandShanghaiBankingCorporationLimited,NewZealandBranchincorporatedinHongKongSAR;TheHongkongandShanghaiBankingCorporationLimited,BangkokBranchThisdocumenthasbeenissuedbyTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch("HSBC")fortheinformationofitsinstitutionalandprofessionalcustomers;itisnotintendedforandshouldnotbedistributedtoretailcustomers.IfitisreceivedbyacustomerofanaffiliateofHSBC,itsprovisiontotherecipientissubjecttothetermsofbusinessinplacebetweentherecipientandsuchaffiliate.Thisdocumentisnotandshouldnotbeconstruedasanoffertosellorthesolicitationofanoffertopurchaseorsubscribeforanyinvestment.HSBChasbasedthisdocumentoninformationobtainedfromsourcesitbelievestobereliablebutwhichithasnotindependentlyverified;HSBCmakesnoguarantee,representationorwarrantyandacceptsnoresponsibilityorliabilityastoitsaccuracyorcompleteness.ExpressionsofopinionarethoseoftheResearchDivisionofHSBConlyandaresubjecttochangewithoutnotice.Fromtimetotimeresearchanalystsconductsitevisitsofcoveredissuers.HSBCpoliciesprohibitresearchanalystsfromacceptingpaymentorreimbursementfortravelexpensesfromtheissuerforsuchvisits.HSBCanditsaffiliatesand/ortheirofficers,directorsandemployeesmayhavepositionsinanysecuritiesmentionedinthisdocument(orinanyrelatedinvestment)andmayfromtimetotimeaddtoordisposeofanysuchsecurities(orinvestment).HSBCanditsaffiliatesmayactasmarketmakerorhaveassumedanunderwritingcommitmentinthesecuritiesofcompaniesdiscussedinthisdocument(orinrelatedinvestments),maysellthemtoorbuythemfromcustomersonaprincipalbasisandmayalsoperformorseektoperforminvestmentbankingorunderwritingservicesfororrelatingtothosecompanies.HSBCSecurities(USA)Inc.acceptsresponsibilityforthecontentofthisresearchreportpreparedbyitsnon-USforeignaffiliate.AllU.S.personsreceivingand/oraccessingthisreportandwishingtoeffecttransactionsinanysecuritydiscussedhereinshoulddosowithHSBCSecurities(USA)Inc.intheUnitedStatesandnotwithitsnon-USforeignaffiliate,theissuerofthisreport.IntheUKthisreportmayonlybedistributedtopersonsofakinddescribedinArticle19(5)oftheFinancialServicesandMarketsAct2000(FinancialPromotion)Order2005.TheprotectionsaffordedbytheUKregulatoryregimeareavailableonlytothosedealingwitharepresentativeofHSBCBankplcintheUK.InSingapore,thispublicationisdistributedbyTheHongkongandShanghaiBankingCorporationLimited,SingaporeBranchforthegeneralinformationofinstitutionalinvestorsorotherpersonsspecifiedinSections274and304oftheSecuritiesandFuturesAct(Chapter289)(“SFA”)andaccreditedinvestorsandotherpersonsinaccordancewiththeconditionsspecifiedinSections275and305oftheSFA.ThispublicationisnotaprospectusasdefinedintheSFA.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.TheHongkongandShanghaiBankingCorporationLimitedSingaporeBranchisregulatedbytheMonetaryAuthorityofSingapore.RecipientsinSingaporeshouldcontacta"HongkongandShanghaiBankingCorporationLimited,SingaporeBranch"representativeinrespectofanymattersarisingfrom,orinconnectionwiththisreport.InAustralia,thispublicationhasbeendistributedbyTheHongkongandShanghaiBankingCorporationLimited(ABN65117925970,AFSL301737)forthegeneralinformationofits“wholesale”customers(asdefinedintheCorporationsAct2001).Wheredistributedtoretailcustomers,thisresearchisdistributedbyHSBCBankAustraliaLimited(AFSLNo.232595).TheserespectiveentitiesmakenorepresentationsthattheproductsorservicesmentionedinthisdocumentareavailabletopersonsinAustraliaorarenecessarilysuitableforanyparticularpersonorappropriateinaccordancewithlocallaw.Noconsiderationhasbeengiventotheparticularinvestmentobjectives,financialsituationorparticularneedsofanyrecipient.ThispublicationisdistributedinNewZealandbyTheHongkongandShanghaiBankingCorporationLimited,NewZealandBranchincorporatedinHongKongSAR.InJapan,thispublicationhasbeendistributedbyHSBCSecurities(Japan)Limited.InKorea,thispublicationisdistributedbyTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch("HBAPSLS")forthegeneralinformationofprofessionalinvestorsspecifiedinArticle9oftheFinancialInvestmentServicesandCapitalMarketsAct(“FSCMA”).ThispublicationisnotaprospectusasdefinedintheFSCMA.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.HBAPSLSisregulatedbytheFinancialServicesCommissionandtheFinancialSupervisoryServiceofKorea.InHongKong,thisdocumenthasbeendistributedbyTheHongkongandShanghaiBankingCorporationLimitedintheconductofitsHongKongregulatedbusinessfortheinformationofitsinstitutionalandprofessionalcustomers;itisnotintendedforandshouldnotbedistributedtoretailcustomersinHongKong.TheHongkongandShanghaiBankingCorporationLimitedmakesnorepresentationsthattheproductsorservicesmentionedinthisdocumentareavailabletopersonsinHongKongorarenecessarilysuitableforanyparticularpersonorappropriateinaccordancewithlocallaw.AllinquiriesbysuchrecipientsmustbedirectedtoTheHongkongandShanghaiBankingCorporationLimited.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.InCanada,thisdocumenthasbeendistributedbyHSBCSecurities(Canada)Inc.(memberIIROC),and/oritsaffiliates.TheinformationcontainedhereinisundernocircumstancestobeconstruedasinvestmentadviceinanyprovinceorterritoryofCanadaandisnottailoredtotheneedsoftherecipient.NosecuritiescommissionorsimilarregulatoryauthorityinCanadahasreviewedorinanywaypassedjudgmentuponthesematerials,theinformationcontainedhereinorthemeritsofthesecuritiesdescribedherein,andanyrepresentationtothecontraryisanoffense.IfyouareanHSBCPrivateBanking(“PB”)customerwithapprovalforreceiptofrelevantresearchpublicationsbyanapplicableHSBClegalentity,youareeligibletoreceivethispublication.Tobeeligibletoreceivesuchpublications,youmusthaveagreedtotheapplicableHSBCentity’stermsandconditions(“KRCTerms”)foraccesstotheKRC,andthetermsandconditionsofanyotherinternetbankingserviceofferedbythatHSBCentitythroughwhichyouwillaccessresearchpublicationsusingtheKRC.DistributionofthispublicationisthesoleresponsibilityoftheHSBCentitywithwhomyouhaveagreedtheKRCTerms.Ifyoudonotmeettheaforementionedeligibilityrequirementspleasedisregardthispublicationand,ifyouareacustomerofPB,pleasenotifyyourRelationshipManager.ReceiptofresearchpublicationsisstrictlysubjecttotheKRCTerms,whichcanbefoundathttps://research.privatebank.hsbc.com/–wedrawyourattentionalsototheprovisionscontainedintheImportantNotessectiontherein.©Copyright2017,TheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch,ALLRIGHTSRESERVED.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted,onanyformorbyanymeans,electronic,mechanical,photocopying,recording,orotherwise,withoutthepriorwrittenpermissionofTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch.MCI(P)069/06/2017,MCI(P)126/02/2017[747121]20 KoreaResearchTeamHeadofResearch,KoreaInsuranceBrianCho+82237068750briancho@kr.hsbc.comAnalystSinyoungPark+82237068770sinyoungpark@kr.hsbc.comBanksAnalystMetals&MiningSinyoungPark+82237068770sinyoungpark@kr.hsbc.comHeadofResearch,KoreaBrianCho+82237068750briancho@kr.hsbc.comConsumer,BrandsandRetailHeadofConsumerBrandsandRetailEquityTMTResearch,Asia-PacificKarenChoi+82237068781Analystkaren.choi@kr.hsbc.comRickySeo+82237068777rickyjuilseo@kr.hsbc.comAssociateJennyChae+82237068774Analystjenny.chae@kr.hsbc.comJenaHan+82237068772jenahan@kr.hsbc.comEquityStrategyAnalystHeadofResearch,KoreaWillCho+82237068765BrianCho+82237068750will.cho@kr.hsbc.combriancho@kr.hsbc.comAssociateKennethShim+82237068779Industrialskennyshim@kr.hsbc.comHeadofResearch,KoreaBrianCho+82237068750briancho@kr.hsbc.comAnalystPaulChoi+82237068758paulchoi@kr.hsbc.comAnalystYeonLee+82237068778yeonlee@kr.hsbc.com'