SK Square: Higher NAV Driven by Its Holding in SK Hynix

• SK Square owns a 20.07% stake in SK Hynix which is now worth 27.2 trillion won. SK Square's market cap is only 39% of SK Square's stake in SK Hynix.

• SK Square has benefited from increased capital allocation to low P/B stocks in Korea due to the Corporate Value Up program. SK Square is trading at P/B of 0.7x.

• Amid the tremendous demand for Nvidia's AI related chips, this has also benefited several Korean companies including SK Hynix and SK Square.

Tremendous Demand for Nvidida's AI Chips Has Also Benefited SK Hynix and SK Square

NVIDIA Corp (NVDA US)'s market cap has surged to US$2.3 trillion. The combined market caps of 2,685 listed stocks in Korea are 2,677 trillion won (US$2.0 trillion). In other words, you can buy the entire Korean stock market for one Nvidia + $300 billion leftover.

Number of listed companies in Korea (KOSPI, KOSDAQ, and KONEX) (Source: KRX)

Amid this tremendous demand for AI related chips benefiting companies such as Nvidia, there have also been numerous companies in Korea that are also attracting increasing attention. SK Hynix (000660 KS) is one of Nvidia's key suppliersfor the next generation high-bandwidth memory (HBM) chips used in artificial intelligence chipsets. Global investors are searching globally to find the major suppliers to Nvidia and clearly SK Hynix is one the key beneficiaries as Nvidia's main supplier for the HBM3/HBM3E chips.

SK Hynix has been the industry's first provider of HBM3. The new HBM3E chip by SK Hynix provides a 10% improvement in heat dissipation and processes up to 1.18 terabytes of data per second. SK Hynix's HBM capacity is fully booked for 2024 driven by higher demand for high-end AI related memory chips.

SK Square NAV Valuation Analysis

SK Square (402340 KS) owns a 20.07% stake in SK Hynix which is now worth 27.2 trillion won. SK Square's market cap is 10.7 trillion won. In other words, SK Square's market cap is only 39% of SK Square's stake in SK Hynix.

Our NAV analysis of SK Square suggests NAV of 15.9 trillion won or 114,255 won per share, representing 48% higher than current share price. The biggest component of the NAV valuation is SK Hynix's 20.1% stake in SK Hynix which is worth 27 trillion won. We estimate that the remaining portion of the company's other investments are worth about 3.5 trillion won.