Morgan Stanley Interview: Discount Up to 47%, HYnix's Parent Company SK Square Faces a Reassessment Golden Opportunity

In the latest edition of Morgan Stanley’s “Analyst in the Hot Seat” podcast, Nicole Yap, the Head of Asia Equity Sales at Morgan Stanley, had an in-depth conversation with Ryan Kim, Chief Analyst for Technology and Battery Materials in South Korea. The two focused on how the semiconductor giant SK Hynix's position strategy has undergone a major shift under the boom of AI High Bandwidth Memory (HBM) – with its parent company, SK Square, becoming the number one target for institutions looking to replace Hynix due to its unique “compliance necessity” and significant discounts.

Below is a core transcription of Morgan Stanley’s interview:

I. 10% Individual Stock Limit Card: South Korean National Pension “Forced” to Rebalance Portfolio

Since the beginning of 2026, driven by the explosive demand for artificial intelligence chips and high-performance HBM memory, SK Hynix's stock price has risen by approximately 170% Y-to-date (YTD), with its market value swiftly surpassing 100 trillion won.

However, this surge has led to a blissful dilemma for South Korea's major mutual funds and national pensions, such as the National Pension Service (NPS). Ryan Kim pointed out that, according to Article 8 and related implementation orders of South Korea's "Financial Investment Services and Capital Markets Act," the maximum holding ratio of mainstream equity funds for a single stock is strictly capped at 10% (Single-Stock Limit).

As Hynix's actual weight in the South Korean Composite Stock Price Index (KOSPI) swelled to over 17.5%, large funds not only could not increase their holdings due to “exceeding limits,” but they were also forced to reluctantly reduce their Hynix positions to meet compliance requirements.

In order to avoid portfolio concentration risk while retaining 100% of the growth dividends from the AI memory cycle, the substantial liquidity of South Korean institutions is massively shifting towards Hynix's holding parent company—SK Square.

II. SK Square: The Purest Agent of Hynix

As an intermediate holding company spun off from SK Telecom, SK Square currently holds an absolute controlling stake of 20.5% in SK Hynix. From a financial structure perspective, Hynix's performance is directly accounted for as equity method earnings on SK Square's balance sheet, with a historical stock price correlation of up to 98% between the two.

Morgan Stanley’s analysis suggests that, compared to directly purchasing Hynix, which has entered a historical high with a 12-month forward Price-to-Book Ratio (PBR) of 2.8 times, SK Square possesses two incomparable Alpha advantages:

1. Highly Attractive Asset Discount: As of the end of April, based solely on the value of its Hynix shares (approximately 200 trillion won), SK Square's discount rate compared to its own Net Asset Value (NAV) is still as high as 42.4% to 47.3%. Buying SK Square is equivalent to indirectly purchasing Hynix with a 50% discount.

2. Stable Control and U.S. Listing Dividends: As Hynix plans to list in the U.S. through the issuance of overseas depository receipts (DR/ADR) within the year, in order to meet South Korea’s "Fair Trade Act" requirement that the holding company's stake must not be less than 20%, SK Square must and will maintain its stake at above 20.5%, possibly even increasing it in the future, providing a solid foundation for the parent company's asset base.

III. "Super Bonus" yet to be Fully Priced by the Market

Kim especially emphasized that the consensus ratings by Wall Street and South Korean sell-side analysts for SK Square are mostly "buy," with some local securities firms even doubling their target price to 1.45 million won. However, the market has apparently overlooked the imminent shareholder return arsenal of this company.

At the recently concluded shareholders' meeting, SK Square passed a resolution to convert 59 trillion won in capital reserves into distributable retained earnings. According to the company's latest three-year shareholder return policy from fiscal years 2026 to 2028, the company has pledged to return 30% of its regular dividend income and a significant proportion of investment realization dividends directly to shareholders, with a total return amount of 31 billion won this year.

Additionally, as Hynix canceled 2.1% of its treasury stock in February, it automatically increased SK Square's holding ratio from 20