Samsung's W110tr shareholder return disappoints investors

Samsung Electronics shares plunged nearly 9 percent Monday, with the company's plan to allocate up to 110 trillion won ($79.5 billion) for shareholder returns falling short of market expectations.

Samsung Electronics shares closed at 257,000 won, down 8.7 percent from the previous session, according to the Korea Exchange. Its preferred shares fell 8.55 percent.

The chipmaker's plunge sent other Samsung Group affiliates reeling. Samsung C&T fell 7.84 percent, while Samsung Life Insurance dropped 13.09 percent.

Monday's sell-off followed smaller-than-expected shareholder returns. 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 the lack of a share cancellation plan.

Issuing buybacks is not straightforward for Samsung Electronics, however, 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 have pointed out that the plan still leaves room for further shareholder returns, 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," said Lee Young-gon, the research center leader at Toss Securities.

"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."

Samsung Electronics’ sharp decline Monday contrasted with SK hynix’s strong gains last week following the announcement of details of its share buyback and cancellation plan.

On Wednesday, 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 them.

Following the announcement, SK hynix shares surged 12.73 percent in the next trading session and gained an additional 2.31 percent the following day. On Monday, however, investors locked in gains, with the share price shedding 3.41 percent to close at 1,671,000 won.

"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.

Sharp declines in market heavyweights Samsung Electronics and SK hynix dragged the benchmark Kospi down 3.12 percent to close at 6,696.96 on Monday. Foreign investors sold a net 3.68 trillion won worth of shares, while institutional investors offloaded 1.29 trillion won. Retail investors, meanwhile, bought a net 3.32 trillion won.