Moody's Gives SK hynix Its First-Ever 'A' Rating... Why?

[Financial News] International credit rating agency Moody's Corporation has assigned SK hynix its first-ever credit rating in the A range.
According to the credit rating industry on the 4th, Moody's Corporation upgraded SK hynix's long-term issuer rating and senior unsecured debt rating by one notch from 'Baa1' to 'A3' the previous day. It kept the outlook at 'stable.' This is the first time SK hynix has received an A-range rating from one of the three major global credit rating agencies since it was incorporated into SK Group in 2012. Standard & Poor's and Fitch Ratings currently rate SK hynix at 'BBB+.' However, S&P Global Ratings has assigned SK hynix a 'positive' outlook, drawing attention to whether it will soon enter the A range. A positive outlook often leads to a rating upgrade within a few months.
Moody's Corporation said the upgrade was based on the view that "SK hynix will maintain strong profitability and cash generation over the next 12 to 18 months, while further strengthening its financial structure and flexibility." It added that this would "provide substantial cushioning to help the company respond to a future downturn in the semiconductor cycle." Moody's also said demand for advanced memory products such as high bandwidth memory and server DRAM is expected to remain solid as hyperscale cloud providers continue investing in artificial intelligence infrastructure.
Moody's Corporation projected that SK hynix's EBITDA, or earnings before interest, taxes, depreciation and amortization, will rise from about 65 trillion won last year to about 274 trillion won this year and about 374 trillion won next year. It also expected operating cash flow to far exceed capital spending and shareholder returns, allowing SK hynix's net cash position to expand further over the next 12 to 18 months.
Based on Moody's estimates, SK hynix's adjusted net cash increased from about 10 trillion won at the end of last year to about 67 trillion won at the end of the first half of this year. SK hynix has set a goal of maintaining more than 100 trillion won in net cash. Moody's said that "a large net cash position provides significant financial flexibility to meet rising investment needs and a buffer to withstand the memory industry's high cyclicality." It added that SK hynix has strong competitiveness in the global memory semiconductor industry, including a leading position in the AI HBM market, and that its solid financial structure and conservative financial policy also support its credit profile.
However, Moody's pointed to the memory semiconductor industry's high cyclicality, intensifying competition including from Chinese memory chipmakers, and the need for large-scale capital investment to maintain competitiveness as downside risks. It added that further upgrades are possible if earnings volatility declines and a sufficient net cash position is maintained, but that the rating could be lowered if profitability weakens or if aggressive investment, shareholder returns, or delays in technology transitions damage the company's financial structure or market position.
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