KB News Desk
Shares plunge nearly 9% amid concerns over payout size, unclear timing and absence of share cancellations
Samsung Electronics shares plunged during trading Monday as the company’s plan to allocate up to 110 trillion won ($79 billion) for shareholder returns fell short of market expectations.
Samsung Electronics shares were trading at 257,000 won, down 8.7 percent from the previous session, as of 2 p.m., according to the Korea Exchange. Its preferred shares fell 7.83 percent.
The chipmaker’s plunge sent other Samsung Group affiliates reeling. Samsung C&T fell 7.84 percent while Samsung Life Insurance dropped 11.34 percent.
Monday’s sell-off marked a sharp contrast with the previous session.
Samsung Electronics gained 3.87 percent during regular trading on Friday, but turned lower in after-hours trading after the chip giant announced its shareholder return plan following the market close.
The sharp decline came following a smaller-than-expected shareholder return. The market had initially expected Samsung Electronics to return as much as 150 trillion won to shareholders. The company’s annual operating profit was projected to reach 380 trillion won this year, with its full-year free cash flow estimated at 263 trillion won.
The company’s failure to specify how and when the remaining funds would be returned to shareholders also weighed on investor sentiment, along with a lack of cancellation plan.
But issuing buybacks is not straightforward for Samsung Electronics, due to regulatory limits on ownership by its financial affiliates.
If Samsung Electronics were to cancel the shares, the resulting reduction in its outstanding shares would automatically push the combined stake held by its insurance units beyond the 10 percent regulatory cap, forcing them to sell shares.
Yet, analysts said the plan still leaves room for further shareholder returns, while highlighting Samsung Electronics’ strong cash-generating capacity.
“Samsung Electronics’s plan could be somewhat disappointing for investors who had expected a large-scale share buyback,” Lee Young-gon, research center leader at Toss Securities, said.
“But it should not be viewed entirely negatively it highlights that Samsung Electronics can return up to 110 trillion won in cash to shareholders while continuing to make large-scale investments, demonstrating the strength of its cash-generating capacity.”
SK hynix shares had been on the rise after the chipmaker recently announced details of its share buyback and cancellation plan.
On Aug. 19, SK hynix announced plans to spend about 40 trillion won to buy back 24.07 million of its own shares on the open market and cancel all of them.
Following the announcement, the shares surged 12.73 percent in the next trading session and gained an additional 2.31 percent the following day. On Monday, however, the shares partly turned in the gains, shedding 1.73 percent to 1.7 million won as of 2 p.m.
“The latest shareholder return plans can be seen as a positive development for both Samsung Electronics and SK hynix. However, SK hynix is expected to see a greater short-term boost to its share price, as its plan places a stronger emphasis on share buybacks and cancellations.” Lee said.
Meanwhile, Samsung Electronics plans to unveil details of additional shareholder returns in October and finalize its next shareholder return policy in January next year.
