Daily Brief Credit: Weekly Wrap – 28 Jul 2023 and more

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. 21Vianet Group
2. SK Hynix
3. Yuexiu Property
4. Nameson Holdings
5. China Jinmao Holdings

and more…

SK Hynix has reported weak Q2/23 results as expected. While the Q2 results registered a recovery on account of an improvement in the memory semiconductor market, the recovery was from a very low base in Q1. Performance remained abysmal compared to last year, with revenue falling by half y-o-y and EBITDA plunging 92%. The financial risk profile continued to be very weak, with large negative FCF, fast-increasing debt and soft earnings.

We believe there is a high level of optimism in AI-related companies, including SK Hynix. Despite the weak results (with some signs of recovery from a low base), the company’s share price surged yesterday.

We maintain our forecasts. Considering the industry downturn, we expect FY 2023 EBITDA to decline c. 80-85% y-o-y, with significantly negative FCF. Moreover, debt should spike c. 50% to cover the negative FCF and fund the USD 2 bn payment for Solidigm. This will likely bring Debt/EBITDA to stressed levels (e.g. 7-8x) at year-end. That said, we expect improvement from FY 2024, on the back of an industry recovery.

We see a high likelihood of downgrades by the agencies in the next 1.5 years. SK Hynix is rated Baa2 (negative)/BBB- (negative)/BBB (stable) by Moody’s/S&P/Fitch. We expect the company to hit the negative rating triggers, given the industry decline and debt-funded acquisition of Solidigm.