Samsung Shares Plummet Over 8%: Why the Divergence in Shareholder Returns?

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Samsung Electronics announced plans to allocate up to 110 trillion won for shareholder returns, but its share price plummeted by more than 8% yesterday (August 24).

Reporter Kim Hye-min explains the reasons behind this movement.

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The downward trend for Samsung Electronics, which was initially observed on the alternative trading system following its shareholder return policy disclosure last Friday, continued into the regular trading session.

The decline widened further, with shares plunging 8.7% to close at 257,000 won.

SK Hynix also declined, but limited its loss to the 3% range.

The temperature difference between the two semiconductor giants is attributed to the impact of their respective shareholder return plans.

Although the scale announced by Samsung Electronics is an all-time high of 90 trillion to 110 trillion won, nothing has been finalized other than a 30 trillion won cash dividend for the third quarter.

This was evaluated as falling short of expectations compared to SK Hynix, which announced plans to purchase and entirely retire 40 trillion won worth of treasury stocks.

The market generally interprets treasury stock retirement—which permanently increases per-share value by reducing the number of issued shares—as a more direct stock price booster.

[Lee Hyo-seop, Head of Financial Industry Research, Korea Capital Market Institute: Because retirement immediately increases earnings per share, treasury stock purchases and retirement have had a major impact on rising stock prices in the U.S. as well.]

Expectations that large-scale treasury stock retirement might be difficult for Samsung Electronics even in its remaining 60 to 80 trillion won shareholder return were also factored in.

This is because financial affiliates Samsung Life Insurance and Samsung Fire & Marine Insurance hold Samsung Electronics stakes right at the 10% limit under the Financial Industry Structural Improvement Act, meaning that if Samsung Electronics retires its treasury shares, their holdings would exceed this limit.

Consequently, large-scale retirement is deemed difficult, and even if some shares are retired, Samsung Life and Fire would have to dump their excess shares onto the market.

In the securities sector, the possibility of purchasing and retiring preferred shares—which lack voting rights and are thus excluded from stake-limit calculations—has also been raised.

[Kim Soo-hyun, Head of Research Center, DS Investment & Securities: Preferred shares are always cheaper than common shares. Buying and retiring them in larger quantities has the effect of reducing the total number of issued shares more significantly. In this case, earnings per share increase even more for common shareholders as well.]

The remaining scale and specific methods of Samsung Electronics' shareholder returns are scheduled to be decided at a board meeting in January next year.

(Reported by Ha Ryung | Video Edited by Park Chun-bae | Design by Choi Jae-young)
※ Please note: This article was translated by AI and may contain errors.