Samsung Electronics and SK Hynix profit growth rates declined to single digits in May according to a Heungkuk Securities report released on May 14, with the Korean stock market experiencing increased volatility as a result. Heungkuk Securities researcher Lee Young-won attributed the slowdown to production capacity constraints rather than weakening semiconductor demand, noting that price increases alone cannot sustain continued growth. The report provided context that Samsung and SK Hynix recently accelerated large-scale semiconductor facility investment schedules to address long-term AI demand, while current stock valuations reflect excessive pessimism with forward P/E ratios around 4x.
Samsung Electronics and SK Hynix Report Single-Digit Profit Growth in May
The month-over-month increase in 12-month forward net profit estimates for Samsung Electronics reached 9.3% in May, while SK Hynix recorded 6.7%, according to the Heungkuk Securities report. These figures represent a significant decline from January, when the two companies posted growth rates of 71.7% and 76.9% respectively, and from April's 58.7% and 60.5%. Lee Young-won stated that "the core reason for recent market volatility expansion is concerns about semiconductor growth momentum slowdown," while adding that "current stock prices reflect excessive pessimism beyond the range of predictable growth slowdown."
KOSPI declined 8.94% recently, falling below the 7000 level. SK Hynix dropped 16.15% and Samsung Electronics fell 9.65%, leading the index decline. SK Hynix reacted more sensitively to earnings growth slowdown concerns than to supply-demand improvement expectations from its successful American Depositary Receipt listing.
SK Hynix Operating Margin Expected to Plateau Around 76-79%
SK Hynix's operating margin rose from 23% in Q1 2024 to 71.5% in Q1 2025, with Q2 2025 projections around 76%, according to the report. The analysis indicated that the margin is more likely to plateau in the high 70% range rather than exceed 80%. Heungkuk Securities assessed that this operating margin improvement is approaching its peak.
Heungkuk Securities Attributes Slowdown to Production Capacity Limits
The securities firm analyzed that the growth rate slowdown stems from production capacity limitations rather than declining semiconductor demand. The report stated that continuing to raise sales and profit margins through price increases alone is difficult in situations where new production facility operations are limited. Buyer price resistance to semiconductors is also increasing, making it more likely that future additional growth will occur through expanded production volume rather than higher selling prices.
Samsung and SK Hynix Accelerate Semiconductor Facility Investment Schedules
Samsung Electronics and SK Hynix recently moved up the schedules for large-scale semiconductor production facility investments. The report interpreted this as a move to respond to long-term demand that AI will create. Lee Young-won stated that "Samsung Electronics and SK Hynix's 12-month forward P/E ratios falling to around 4x is a result of excessive pessimism about the semiconductor industry being reflected," adding that "while we should be wary of additional confusion possibilities, it is now time to consider together the conditions for market volatility to calm down."
The analysis noted that aggressive production capacity expansion requires the premise that AI demand will continue long-term, but pointed out that reflecting all supply oversupply possibilities in stock prices before actual investment begins in earnest is excessive.
FAQ
What profit growth rates did Samsung Electronics and SK Hynix report in May?
According to the Heungkuk Securities report released on May 14, Samsung Electronics' 12-month forward net profit estimate increased 9.3% month-over-month in May, while SK Hynix recorded 6.7%. These represent significant declines from January's 71.7% and 76.9% growth rates respectively.
Why did Heungkuk Securities attribute the profit growth slowdown to production capacity rather than demand?
The report stated that new production facility operations are limited, making it difficult to continue raising sales and profit margins through price increases alone. The analysis indicated that buyer price resistance is increasing, making future growth more likely to come from expanded production volume rather than higher prices.
