Samsung Electronics stock plunges by 9%, as shareholder return plan of 80 billions USD falls short of expectations

According to Golden Ten Data APP, on Monday, South Korean memory chip giant Samsung Electronics saw its share price drop by as much as 9%, after the company announced a shareholder return plan worth up to $80 billion that failed to meet investor expectations. Investors had hoped the chip giant would share more of the cash benefits brought about by the artificial intelligence (AI) boom and provide clearer guidance on its stock buyback plan.

Both Samsung Electronics and competitor SK Hynix announced major shareholder return plans last week, following a surge in chip demand driven by the AI boom that led both companies to achieve record-breaking performances, increasing pressure from investors demanding a share of the profits.

Last Friday, Samsung Electronics stated that the amount to be returned to shareholders this year will be between 90 trillion and 110 trillion won (approximately $65 billion to $80 billion), including a third-quarter cash dividend of 30 trillion won. Although this return amount is five times the previous record set in 2020, analysts pointed out that it is still below market expectations, and investors were hoping for more details regarding the buyback plan.

Samsung stated that under its shareholder return policy for 2024 to 2026, the company will continue to commit to returning 50% of accumulated free cash flow over the three-year period to shareholders.

Rival SK Hynix, on the other hand, announced last week that it would repurchase and cancel 40 trillion won worth of treasury shares and use more than 50% of free cash flow to enhance shareholder returns from 2025 to 2027.

Eugene Investment & Securities analyst Son In-joon noted in a research report: "Unlike SK Hynix, Samsung Electronics did not mention the possibility of raising the existing shareholder return policy, nor did it announce a treasury stock cancellation plan that could directly boost the share price. This is disappointing."

As of press time, SK Hynix's share price was down 3%, and South Korea’s benchmark KOSPI index fell 3.3%.

Samsung's Ownership Structure Restricts Buyback Capacity

The market had expected Samsung Electronics to boost capital returns through a larger-scale buyback, directly supporting its share price. However, Samsung’s ownership structure complicates buyback plans—a large-scale buyback could push major shareholders Samsung Life and Samsung Fire's holdings above regulatory limits, forcing both affiliated firms to sell shares to bring their combined stake below 10%.

As a result, Kim Soo-hyun, head of research at DS Investment & Securities, said that the remaining 60 trillion to 80 trillion won in Samsung Electronics’ funds is expected to be mainly used for dividend payments, with only 10 trillion to 20 trillion won possibly allocated for stock buybacks and cancellations. As a result, Samsung Life and Samsung Fire's shares also plunged by 9.9% and 8% respectively.

Samsung Electronics stated last Friday that its board of directors will decide on the remaining return plans in January 2027, when it will take into account measures such as cash dividends, stock buybacks, and share cancellations.

Morgan Stanley commented in its report: “The capital return is generous, but slightly below expectations.” The report also noted that investors should pay close attention to the company's new round of capital return framework, which will take effect next year.