SK Hynix Shareholder Return Policy Rated Higher Than Samsung Electronics… When Will Stock Prices Rebound?

SK Hynix expects its total annual shareholder return for this year to be between 40 trillion won and 60 trillion won, with 40 trillion won officially announced for share buybacks and cancellations. This scale, exceeding market expectations, sent a positive signal to investors. Kim Rok-ho, Team Head, commented, "Since 40 trillion won has already been announced for share buybacks and cancellations alone, we believe it had a considerable impact on the market." SK Hynix plans to announce additional shareholder return plans with its Q3 earnings release.

Samsung Electronics announced a 15 trillion won share buyback, but this was for employee bonuses. It also presented a total shareholder return of 90 trillion won to 110 trillion won annually, including a 30 trillion won regular and special dividend for Q3. Kim Rok-ho, Team Head, pointed out, "First, the share buyback was for employee bonuses with no intention of cancellation, and the scale of 15 trillion won was also small compared to Hynix's market capitalization." He emphasized that the share buyback was not for cancellation purposes. This policy disappointed the market due to a lower proportion of share buybacks and cancellations compared to SK Hynix.

SK Hynix announced that it would mention additional shareholder return plans concurrently with its Q3 earnings release. Samsung Electronics, on the other hand, announced that it would confirm additional shareholder returns through a board meeting in January 2027. Kim Rok-ho, Team Head, explained, "SK Hynix said they would mention additional shareholder returns immediately with the Q3 earnings release, but Samsung Electronics said they would confirm additional shareholder returns through a board meeting in January 2027, so there was a longer delay in the announcement of additional shareholder returns." This difference in announcement timing contributed to the wider decline in Samsung Electronics' stock price. It is interpreted that the disappointment regarding Samsung Electronics' lack of immediate mention of additional shareholder returns was reflected in the stock price.

Companies' shareholder return funds are calculated based on Free Cash Flow (FCF). Samsung Electronics' FCF does not include advance payments, and SK Hynix also does not deduct M&A costs from FCF. Kim Rok-ho, Team Head, stated, "Advance payments are not included in the free cash flow that Samsung Electronics uses as a source for shareholder returns. Hynix also does not subtract M&A expenses from free cash flow." This indicates a trend of companies pursuing both investment and shareholder returns.

The memory price increase trend began in earnest after August-September of last year, but this year, due to the base effect, it is difficult to expect rapid growth of 200-300% year-on-year. Kim Rok-ho, Team Head, commented, "Prices started to rise sharply from around August, September of last year. The trend was not that strong until around July, August of last year. So, after September, as the base effect becomes stronger in Q4, it will be difficult to see growth like the 300% for DRAM and over 200% for SSD you are currently seeing." Now is the time to closely monitor month-over-month price changes.

Samsung Electronics' earnings estimates have stopped rising, and SK Hynix's have even been adjusted downwards. Kim Rok-ho, Team Head, explained, "Samsung Electronics' estimates, which were rising, have stopped, and Hynix's have not only stopped but have been adjusted downwards. This is because we have a structure where shipments cannot increase significantly, as production capacity is limited. So, it comes down to what happens to prices while Q is limited, and customers are increasingly burdened, and with long-term supply contracts, price volatility due to market supply and demand is inevitably limited." This is attributed to the limitations in increasing shipments due to production capacity constraints and reduced memory price volatility due to long-term supply contracts.

The supply shortage situation for mobile and server DRAM remains difficult to resolve. Kim Rok-ho, Team Head, stated, "Even if we calculate it, the supply shortage situation for mobile DRAM and server DRAM is not a structure that can be resolved. If you are in a position where you have to compete with others to get it, prices are bound to rise. I see a higher possibility of outperformance, and therefore, I believe that estimates will be adjusted upwards during the process of preparing the Q3 earnings preview." There is almost no possibility of memory prices falling, and it is highly likely that earnings estimates will be adjusted upwards during the preparation of the Q3 earnings preview.

As the strong Korean won causes the exchange rate to fall below 1,400 won, it could negatively impact the earnings of export-oriented companies like Samsung Electronics and SK Hynix. Kim Rok-ho, Team Head, analyzed, "Since the won has become so strong, the exchange rate has fallen below 1,400 won. For Samsung and Hynix, which are almost entirely export-oriented, this directly results in a decrease in top-line revenue, and if top-line revenue decreases, operating profit will naturally decrease, so the exchange rate can be a significant obstacle." An exchange rate downward adjustment effect of about 7% is expected, and despite fundamental improvements, earnings estimates may be lowered due to the exchange rate.

Due to the decline in stock prices of global peer companies, there is pressure for downward adjustment of multiples for domestic semiconductor companies. Kim Rok-ho, Team Head, commented, "There is still room to raise estimates, and while it's a product of estimates and multiples, I definitely feel pressure to lower the multiple portion. The stock prices of global peer companies have fallen to some extent, and their multiples have all been leveled down. Considering these factors, the multiples for Samsung Electronics and Hynix should also be lowered." Current stock prices are in a transitional decline, requiring caution in applying multiples.

A strong Korean won is exerting downward pressure on earnings estimates by approximately 6-7%. Conversely, there is an expectation of price increases as DRAM supply remains tight. The host summarized Kim Rok-ho's statement, "Among what Kim Rok-ho said, if a variable has emerged from what we previously estimated, it's that the won has strengthened by about 6 to 7%." The situation requires a comprehensive consideration of the offsetting effects between the exchange rate and the magnitude of memory price increases.

Semiconductor companies tend not to actively pursue exchange rate hedging strategies. The host commented, "Basically, just as we have fixed prices and spot prices, companies don't hedge their DRAM exchange rates." This implies that exchange rate volatility can directly impact corporate earnings.

Stock prices of semiconductor materials, parts, and equipment companies, primarily on KOSDAQ, have fallen, increasing their valuation attractiveness. The Q2 earnings miss was due to sales deferrals and one-time expenses such as performance bonuses, which will ultimately be fully captured in Q3 and are merely accounting events. Kim Rok-ho, Team Head, explained, "The sales that were not captured in Q2 will eventually all be captured in Q3. So, these misses due to sales deferrals are ultimately issues that will be made up." There is almost no change in annual earnings estimates, and these companies still have over 50% upside potential compared to global equipment manufacturers.

There are concerns in the market about shareholder damage due to the separate listing of SK Hynix's Solidigm. However, there is no official stance from the company, and confirmed details are limited. Kim Rok-ho, Team Head, assessed, "I don't think the benefits SK Hynix can gain from separately listing Solidigm are clear." As there is a lack of clear benefits to be gained from a separate Solidigm listing, the possibility of an aggressive listing push is expected to be low.

Companies internally strictly limit the tone and scope of their IR (Investor Relations) and are mandated to communicate uniformly. Kim Rok-ho, Team Head, commented, "Companies set the tone for IR or the range of what can be officially mentioned, and internally decide to communicate uniformly." SK Hynix commented on shareholder returns despite difficult circumstances at the time, and it is also necessary to consider the 10% stake held by Samsung Electronics' financial affiliates in its share buyback.

SK Hynix is conducting nearly 1 trillion won in share repurchases almost daily, and it is expected that once these purchases proceed to a certain extent, they will contribute to resolving the selling pressure and to fundamental recovery. Kim Rok-ho, Team Head, predicted, "In the case of Hynix, they are currently conducting nearly 1 trillion won in repurchases almost daily, so once these proceed to a certain extent, we can see stock price movements that will align with fundamentals and such." Samsung Electronics' preliminary earnings are scheduled to be announced in early October, and SK Hynix's detailed earnings in late October, with Samsung Electronics and SK Hynix stock prices expected to show a recovery trend by year-end.

Foreign net buying has significantly strengthened since late July of this year. Kim Rok-ho, Team Head, analyzed, "Currently, foreign investors are not burdened by these price levels of Samsung Electronics and Hynix, and they seem to find the scale of shareholder returns attractive." Foreign long-term money assesses the current shareholder return size relative to market capitalization as attractive, and from a long-term perspective (over 5 years), current stock prices are considered not burdensome. This is expected to have a positive impact on stock price rebound in the second half of the year.