After improving shareholder value as the stock price plummeted
3 trillion won purchased within 3 months - all incinerated
“Short-term prescription… “HBM concerns must be resolved”
Samsung Electronics will purchase 10 trillion won worth of treasury stock over the next year. As the stock price fell by about 33% this year and reached ‘40,000’, the company set out to improve shareholder value. It has been 7 years since January 2017 that Samsung Electronics decided to purchase a large amount of shares worth close to 10 trillion won.
On the 15th, Samsung Electronics held a board meeting and decided to purchase 10 trillion won worth of treasury stock over the course of one year to improve shareholder value. Of these, 3 trillion won was decided to be purchased through over-the-counter purchases and incinerated in full within three months from the 18th to February 17th of next year. There are 50,144,628 shares of common stock and 6,912,036 shares of preferred stock. It was decided to hold an additional board meeting and decide on the purchase period and utilization plan for the remaining 7 trillion won worth. This means that the possibility of additional incineration of all or part of 7 trillion won worth of treasury stock is also open.
Samsung Electronics’ surprise announcement of a policy to enhance shareholder value on a scale that exceeded market expectations can be interpreted as its intention to actively defend its stock price. Due to lower-than-expected performance in October and delays in the supply of high-bandwidth memory (HBM) for artificial intelligence (AI), Vice Chairman Jeon Young-hyun of the DS (semiconductor) division issued an ‘apology’. Afterwards, as the risk of damage to the semiconductor supply chain due to the ‘Trump Storm’ arose and stock prices continued to fall, special measures were taken to purchase and cancel treasury shares.
Samsung Electronics’ stock price has been falling continuously for four months since hitting the 80,000 won range in early August. On the 14th, the stock price recorded 49,900 won, falling to ‘40,000’ for the first time in 4 years and 5 months since June 2020. Although it succeeded in rebounding by 7.21% on the 15th with the recovery of foreign buying, concerns still remain. As Samsung Electronics’ stock price falls, shareholders’ dissatisfaction is also increasing.
In the securities world, there are also expectations about the effect of share buybacks. It rose more than 3% in after-hours trading on news of the share buyback. Previously, Samsung Electronics purchased and canceled its own shares worth 11.3 trillion won in October 2015, the largest ever, and 9.3 trillion won in early 2017. In 2017, the stock price soared by about 50% in the nine months following the announcement. As Samsung Electronics’ price-to-book ratio (PBR) fell below 0.9 as of the 14th, some are analyzing that the current stock price decline is excessively ‘oversold’ compared to the company’s value. A PBR below 1 means that the market capitalization is lower than the company’s assets.
Reporter Jeon Nam-hyuk [email protected]
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What impact will Samsung’s 10 trillion won treasury stock purchase have on its stock prices and investor confidence?
Interview Between Time.news Editor and Finance Expert Dr. Lisa Jung
Time.news Editor: Welcome, Dr. Jung! Thank you for joining us today to discuss the recent developments at Samsung Electronics. Their announcement to purchase 10 trillion won worth of treasury stock has caused quite a stir in the market. What are your initial thoughts on this move?
Dr. Lisa Jung: Thank you for having me! Samsung’s decision is quite significant, especially considering the current market dynamics. Purchasing 10 trillion won in treasury stock—particularly after the stock plummeted to the ‘40,000’ range—is a strong signal that the company is taking proactive steps to restore shareholder confidence. It’s noteworthy that this is the largest share buyback announcement since 2017.
Time.news Editor: Absolutely! The timing is pivotal, given that Samsung’s stock has dropped about 33% this year. What do you think prompted the company to take such drastic measures now?
Dr. Lisa Jung: Several factors are at play. Primarily, the semiconductor sector is facing significant challenges, including delays in high-bandwidth memory production for AI. The recent apology from Vice Chairman Jeon Young-hyun highlights the company’s acknowledgment of its operational hurdles. When stock prices plummet due to underperformance, management often resorts to share buybacks as a strategy to boost values. It’s also a way to demonstrate commitment to shareholders amid rising dissatisfaction.
Time.news Editor: With 3 trillion won of these shares set to be incinerated within three months, what does this indicate about Samsung’s long-term strategy?
Dr. Lisa Jung: Incinerating shares not only removes them from circulation, thereby increasing the value of remaining shares, but it also sends a very clear message to investors: Samsung is dedicated to enhancing shareholder value. However, it also raises an important question about their approach—whether this is a mere short-term fix or part of a more sustainable strategy. The additional board meeting to discuss the remaining 7 trillion won worth of shares will be crucial in determining that.
Time.news Editor: That’s a good point. Many analysts are looking closely at how these measures will affect trading going forward. There’s been some rebound recently, but concerns remain. How effective do you believe these buyback strategies will be in reversing negative investor sentiment?
Dr. Lisa Jung: Historically, share buybacks can be effective in lifting stock prices and instilling a sense of confidence among investors. The immediate after-hours trading response, where shares rose over 3%, demonstrates that there’s still optimism in the market. However, the success of this initiative will largely depend on how effectively Samsung can navigate the ongoing challenges in the semiconductor industry. Investors will want to see sustained performance improvements and reassurances about the company’s ability to address these supply chain issues.
Time.news Editor: We’ve seen this before with Samsung’s earlier buybacks. How does this current situation compare to previous efforts, like in 2015 when they bought back 11.3 trillion won in shares?
Dr. Lisa Jung: The 2015 buyback set a crucial precedent, showcasing Samsung’s commitment to shareholder value during tumultuous times. However, that was in a different market context. The pressures from AI suppliers and geopolitical tensions today—like the ‘Trump Storm’ mentioned in the report—add additional layers of complexity. Investors are more discerning now; they will be watching closely for tangible results rather than hoping solely for good intentions.
Time.news Editor: Thank you, Dr. Jung, for your insights into this situation at Samsung Electronics. It certainly seems to be a critical moment for the company, and we will be keeping a close eye on how things unfold.
Dr. Lisa Jung: Thank you for having me! It’s always a pleasure to discuss these impactful developments in the financial world.