SK hynix shareholders eye Monday rally — but TSMC's PER tells a different story

SK hynix's American depositary receipts closed their Nasdaq debut roughly 16% above the equivalent price of the company's domestic shares on Friday, fueling expectations of a sharp rally in the Korean stock market when trading resumes Monday. But the experience of TSMC, which listed its ADRs in the United States years earlier, suggests the price gap between an ADR and its underlying shares can persist for a long time — meaning the premium formed in New York is not guaranteed to feed directly into the Seoul-listed share price.

SK hynix ADRs, which began trading on Nasdaq on Friday (local time), closed in the $168 range — about 13% above the offering price of $149. With 10 ADRs representing one ordinary share in Korea and applying the prevailing won-dollar exchange rate, the implied domestic share price works out to about 2.52 million won ($1,680).

That is roughly 340,000 won, or about 16%, above SK hynix's closing price of 2.18 million won on the Korea Exchange on Friday. A simple calculation suggests that if the domestic share price were to close the gap with the ADR, it could surpass 2.5 million won.

However, the price difference between the two markets does not automatically translate into a domestic share price gain. ADRs are securities traded by US institutional investors and global technology investors in their home market. Factors such as investment accessibility, liquidity, potential index inclusion and investor risk appetite can all push ADR prices above those of the underlying shares.

TSMC offers the clearest precedent. The Taiwanese chipmaker is listed on both the Taiwan Stock Exchange and the New York Stock Exchange, with one TSMC ADR representing five ordinary Taiwan shares. In theory the prices should be identical, but in practice the US ADR has consistently traded at a premium to the Taiwan shares.

As of Friday, TSMC's ADR closed at $434.11 in New York. On the same day, TSMC shares in Taipei were worth the equivalent of $376 (2,415 New Taiwan dollars) when converted to US dollars — meaning the ADR traded about 15% above the implied Taiwan price.

That gap has been a durable feature of TSMC's dual listing. Citing Bloomberg data, foreign media reported that the ADR's premium over the Taiwan shares averaged about 26% in December last year. The premium has narrowed as Taiwan shares rallied sharply this year, but it still averaged 13.7% in May.

Analysts attribute TSMC's persistent ADR premium to a combination of factors: the difficulty US investors face in buying Taiwan shares directly, the higher liquidity of US markets, and strong demand for AI and semiconductor stocks. Different trading hours between the two markets and the costs and procedures involved in converting between ADRs and ordinary shares also limit the arbitrage that would theoretically close the gap.

A similar pricing structure could take hold for SK hynix. The Wall Street Journal reported market expectations that SK hynix ADRs could trade 12–17% above the domestic shares in the early days after listing. The roughly 16% gap that emerged on the first day of trading falls squarely within that range.

The strong debut also partly reflected limited supply and concentrated demand on the first day of trading. The book-building process drew subscriptions exceeding seven times the shares on offer, with heavy participation from institutional investors focused on US technology and semiconductor stocks. The possibility that initial demand for a newly listed security inflated the opening-day price cannot be ruled out.

There is, however, a case for the ADR lifting SK hynix's domestic share price over time. Just before its US listing, SK hynix was valued at a 12-month forward price-to-earnings ratio of about 5.5 times. TSMC, by contrast, commands a forward PER of more than 20 times. For two leading semiconductor companies trading on the same exchange, that is a striking valuation gap.

That disparity could make SK hynix look relatively cheap to US investors accustomed to TSMC's multiple, providing an incentive to bid up the ADR price. If that happens, it could in turn prompt a revaluation of SK hynix's Korea-listed shares.