SK Securities (001510) on the 30th maintained its "buy" rating and a target price of 1.85 million won on SK Square (402340), saying the company stands to benefit from SK hynix's (000660) share buyback and cancellation as well as additional shareholder returns. The target implies 65.5% upside from the previous close of 1.118 million won.
Choi Kwan-soon, an analyst at SK Securities, noted that SK hynix's buyback is progressing faster than expected. SK hynix plans to purchase 24.07 million of its own shares worth 40 trillion won between Aug. 20 and Nov. 19. The amount represents 3.3% of total shares outstanding, and the company had bought 17.15 million shares, or 71.3% of the planned volume, as of the 29th.
The company bought 650,000 shares a day early in the program and has been purchasing 600,000 shares a day since the 10th. At that pace, the buyback is expected to be completed around mid-October. The shares will be cancelled, and once the cancellation is finished, SK Square's stake in SK hynix will rise to 20.7% from 20.0%.
The analyst also pointed to the potential for larger dividend income from additional shareholder returns. On Aug. 19, SK hynix said it would return more than 50% of cumulative free cash flow generated during the 2025-2027 policy period to shareholders.
SK Securities estimated the scale of those returns based on a consensus forecast of 164 trillion won in free cash flow for SK hynix next year. Assuming the company returns 50% of that, or 82 trillion won, 42 trillion won would remain after excluding the 40 trillion won allocated to the buyback.
"If all of the remaining funds for shareholder returns were paid out as dividends, SK Square's dividend income would reach 8.7 trillion won based on the 20.7% stake after the share cancellation," Choi said.
That could serve as a source for expanded shareholder returns at SK Square. In March, SK Square announced a policy to return more than 30% of its recurring dividend income to shareholders from 2026 to 2028. Applying a 30% payout to the expected dividend income yields about 2.6 trillion won, equivalent to 1.8% of its current market capitalization.
The company has also taken steps to secure distributable profit. At this year's shareholder meeting, SK Square transferred 5.89 trillion won in capital reserves to retained earnings. The amount is set to be included in distributable profit after March next year, when this year's financial statements are finalized, which SK Securities expects will support larger shareholder returns.
