SK hynix (KRX:000660) saw its shares jump 13.06% in Seoul trading on Thursday following the announcement of a planned American Depositary Receipt (ADR) listing on the Nasdaq. The move is expected to help bridge the significant valuation gap between the South Korean memory chipmaker and its U.S. peers Micron Technology (NASDAQ:MU) and Taiwan Semiconductor Manufacturing Co (NYSE:TSM).
The company plans to issue up to 17.79 million new common shares in the form of ADRs, with each ADR representing one-tenth of a common share. The offering is expected to raise up to 45.45 trillion won (approximately $29.4 billion), covering roughly 81% of its 55.92 trillion won capital expenditure plan for AI memory production. At Thursday's closing price of 2,917,000 won, the implied value of the ADR block rose to 51.9 trillion won, covering about 93% of the capex plan.
The dilution from the new shares is modest, estimated at just 2.44% of existing shares. Gary Tan, a portfolio manager at Allspring Global Investments, described the dilution as "limited" and "modest relative to its mid-term capex plans." The bookbuilding for the ADR is set to begin on July 6, with the offer price expected on July 9 and Nasdaq trading slated for July 10, subject to regulatory approvals and market conditions.
The valuation gap is a key focus for investors. Data from Bloomberg, cited by The Edge, shows SK hynix trading at 7.5 times forward earnings in Seoul, compared to 9.5 times for Micron and 21 times for TSMC. Aadil Ebrahim, group head of equities at Klay Group, noted that a liquid U.S. listing could "help narrow the valuation gap." Ryu Young-ho, senior analyst at NH Investment & Securities, said the Nasdaq listing gives SK hynix an "opportunity to be re-rated in the U.S. market."
However, the rerating may not be uniform. Roy Lim, an equity sales trader at NH Investment & Securities, pointed out that the fungibility between ADRs and ordinary shares is a "key swing factor." If the two lines are easily interchangeable, valuations should converge. If not, a U.S. premium could persist, similar to TSMC's ADR premium during the dot-com boom.
Micron's recent earnings report added further momentum. The company reported fiscal third-quarter revenue of $41.46 billion and guided fourth-quarter revenue at $50 billion. CEO Sanjay Mehrotra highlighted the results as demonstrating the "strategic value of memory in the AI era." Additionally, Micron disclosed that customers had committed $22 billion to secure memory-chip supply, underscoring strong demand.
Jeff Kim, head of research at KB Securities-Jefferies, suggested that Korean chip ADRs could be a "strong catalyst for their valuation" and speculated that Samsung Electronics (KRX:005930) might follow SK hynix with its own U.S. ADR listing. The proceeds from SK hynix's offering are earmarked for AI memory capacity, including 9.41 trillion won for the first phase of the Yongin Semiconductor Cluster fab, 21.61 trillion won for later cleanrooms, 19 trillion won for the P&T7 advanced packaging plant in Cheongju, and 5.9 trillion won for an Indiana advanced packaging facility.
