Expectations for Samsung Electronics' (005930.KS) shareholder return policy are rising after SK hynix (000660.KS) announced a plan to buy back and cancel 40 trillion won ($28.8 billion) worth of its own shares. Analysts had earlier said that whether the two chipmakers expand shareholder returns would be a key factor in foreign investor flows and any re-rating of their stocks.
According to the Korea Exchange and Nextrade on the 20th, SK hynix shares closed the previous day at 1.5 million won, down 162,000 won, or 9.75%, from the prior session. After the market closed, the company announced the 40 trillion won buyback and cancellation plan, and the stock pared its losses in the after-market session, which runs from 3:40 p.m. to 8 p.m. As buyers moved in on the shareholder return policy, SK hynix recovered to the 1.6 million won level in after-hours trading.
SK hynix said the policy reflects a judgment that the company's intrinsic value — its business competitiveness, cash-generating ability and medium- to long-term growth potential — is not fully reflected in the current share price. The company has posted record earnings as a leader in the artificial intelligence memory market. As of the end of the second quarter this year, its net cash stood at about 69 trillion won, marking a sharp improvement in cash generation.
Beyond the 40 trillion won buyback and cancellation, SK hynix said in a regulatory filing that it would raise its shareholder returns to "more than 50%" of cumulative free cash flow, from the previous target of "within 50%." It will combine share buybacks and cancellations with cash dividends, and will also consider expanding dividends, including existing fixed and special dividends.
With SK hynix announcing the largest shareholder return policy among South Korea's listed companies, the market is now turning its attention to Samsung Electronics' policy. Samsung is set to announce an additional shareholder return policy as early as this month. It first plans to carry out, as promised, its current three-year (2024-2026) policy of returning 50% of free cash flow.
On top of that, Samsung is reviewing an additional policy aimed at maximizing shareholder value while securing an optimal balance between shareholder returns and reinvestment for future growth. Analysts estimate that Samsung's shareholder returns could reach as much as 120 trillion won.
The market is also watching the possibility that Samsung's shareholder returns could drive a re-rating beyond a simple share rebound, into a "high-dividend stock" like Apple. Apple posted net profit growth of more than 70% from 2010 to 2012, and its stock rose 110% over those three years. From 2013 to 2016, when profit growth slowed, it expanded dividends and share buybacks, raising the ratio of shareholder returns to free cash flow to an average of 64%.
The stock's full-scale rally came only after its image as a high-dividend stock had taken firm hold. From 2019 to 2021, Apple's ratio of shareholder returns to free cash flow rose to an average of 121%, and its stock surged 201% over the same period, far outpacing the 74% gain in the Standard & Poor's 500 index during the same stretch.
Lee Jae-man, an analyst at Hana Securities, said, "Referring to Apple's past transformation, Samsung Electronics' stock, until there is a clear image shift toward a high-dividend stock, may be a company that can record a return in line with the KOSPI rather than a new market leader."
