Samsung and SK Hynix announce substantial shareholder returns
The two storage giants have unveiled large-scale dividend plans. The market is welcoming the positive news, but also expressing doubts about the insufficient scale. The long-standing valuation discount issue in the Korean stock market remains unresolved.
The storage chip companies have abundant cash reserves, and substantial shareholder returns have been implemented.
AI has driven the upward trend of the storage chip market. Samsung Electronics and SK Hynix have accumulated a large amount of cash. The two companies have launched considerable shareholder return plans, which represent a practical application of the "value enhancement" reform in South Korea. The combined total shareholder returns given by the two chip manufacturers this year exceeded 130 trillion won ($97 billion). Investors acknowledged the surprise cash distribution but the market reaction was not particularly enthusiastic. The KOSPI index still has about 26% of room to fall from its historical high set in June.
This year, the AI craze in the South Korean stock market has pushed up earnings expectations, with an increase of 67%. However, the shortcomings in valuation are very prominent. Data shows that the current valuation of KOSPI is only 4.3 times the expected earnings in 2027. The valuation of the Asia-Pacific index in the same region reaches 11 times, with a huge gap. Simply relying on Samsung and SK Hynix to increase cash dividends is unlikely to immediately close the valuation discount that has persisted in the South Korean stock market for a long time. Such discounts require more Korean companies to take action to gradually change investors' perceptions. The plans of these two storage companies are a step forward on the reform path.
Details of the Samsung plan have sparked controversy, with the equity structure being the biggest constraint.
Samsung's plan has been discussed more than the plans of the two companies. Samsung has announced the range of the shareholder returns for the whole year of 2026, targeting between 90 trillion and 110 trillion won. The cash dividends to be paid out this quarter are about 30 trillion won and the specific arrangements for the rest will be decided in January of next year. Many fund managers expressed disappointment with this announcement. The equity structure of the Samsung Group restricts large-scale share buybacks.
If Samsung conducts large-scale share buybacks and cancels shares, the shareholding ratios of related enterprises such as Samsung Life and Samsung Fire may touch regulatory red lines. Once the shareholding exceeds the limit, the two institutions will need to reduce their holdings and bring the shareholding down to within 10%. Such an operation will change the group's equity structure, even shake the family's control over Samsung Electronics, and will also attract stricter regulatory reviews.
The reform is still on a voluntary basis, and there is doubt about other enterprises' willingness to follow suit.
This value enhancement plan in South Korea lacks mandatory constraints and enterprises can choose to participate voluntarily. This is also a key concern for investors. If only Samsung and SK Hynix take the initiative to offer high returns, while the other major enterprises choose to wait and see, the impact of the reform will be greatly reduced. However, there are also some positive signals in the market. South Korean listed firms said they will buy back their own shares worth 39 trillion won ($29.1 billion) this year. This amount is bigger than the total share buybacks in 2024 and 2025 put together. More and more companies see share buybacks as a method to give money back to their shareholders.
Now, the market's tolerance for inefficient capital allocation is constantly decreasing. If listed companies introduce splitting, acquisition, or warrant issuance plans that harm the interests of minority shareholders, they will be strongly resisted by minority shareholders. The awareness of protecting the rights of small and medium shareholders has strengthened, bringing external pressure to South Korean conglomerate enterprises. But structural problems will not disappear quickly. Old problems such as high concentration of equity and insufficient protection of minority shareholders still remain on the table.
Funds will also differentiate between different types of enterprises. Storage chip companies benefit from the demand for AI computing power and have strong profit elasticity. Even if the shareholder return plan has flaws, it still attracts investment. While other traditional South Korean conglomerate enterprises, even if their stock prices are low, as long as there are no accompanying dividend distribution or share buyback plans, the willingness of institutional funds to enter will be weak.
The KOSPI index valuation has long been under pressure, and the core issue is the "Korean discount". Investors are concerned that conglomerates prioritize protecting family interests and ignore the rights of minority shareholders. A one-time large dividend payout is difficult to reverse the long-term formed risk pricing.