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Samsung shares rose more than 5 per cent on Monday in response to a Won10tn ($7.2bn) share buyback plan aimed at boosting its stock, which had fallen to four-year lows last week.
The world’s largest maker of memory chips and smartphones announced after Friday’s market close it would buy back stock to “boost its shareholder value” over the next year, including spending Won3tn for share cancellations over the next three months.
Investors hope the buybacks — Samsung’s first since 2017 — will help reverse a steep decline in its share price. Prior to this week, the stock had fallen more than 30 per cent this year amid mounting concerns about the company’s direction under chair Lee Jae-yong, a third-generation leader from its founding family.
“The sudden buyback comes as a positive surprise to us and we believe Samsung’s management is proactively aiming to prevent further share price decline,” Jay Kwon, an analyst at JPMorgan Chase, wrote in a research note.
But Park Ju-geun, who heads Seoul-based research group Leaders Index, said the plan had also been designed to help protect the group’s founding family, which faces a margin-call risk related to bank loans to pay inheritance taxes.
“It is an act of desperation to curb the selling pressure, but it is also a move to prevent a margin call for the Lee family’s bank loans,” said Park, noting the family has nearly Won3tn in outstanding bank loans and would face a margin call if the stock price had remained below the Won53,000 level it passed last week. In afternoon trading on Monday, it stood at Won56,700.
Samsung denied the buyback was designed to prevent any margin call for the Lee family.
The stock has come under heavy selling pressure in recent months from foreign investors concerned that Samsung is losing its technological edge in its advanced memory chip and foundry businesses.
The company reported disappointing third-quarter earnings and is yet to win certification from Nvidia to supply high-bandwidth memory chips for the graphics processor maker’s AI products. Korean chipmaking rival SK Hynix has instead emerged as the main HBM supplier to Nvidia, helping it post a record quarterly profit.
Samsung is also wrestling with a supply glut in traditional memory chips, its core business, and profitability challenges at its foundry business as it struggles to narrow the gap with leading contract chipmaker TSMC.
The share price declines have intensified following Donald Trump’s election earlier this month as US president, which raised fears of potential trade tariffs and the possible withdrawal of funding allocated to Samsung under Joe Biden’s Chips Act.
Foreign investors have also sold large amounts of stock in Korean battery producer Samsung SDI and auto giant Hyundai Motor following reports that an incoming Trump administration could withdraw electric vehicle subsidies. Other stocks on South Korea’s benchmark Kospi index have also suffered from a steep rise in the won-dollar exchange rate.
Analysts said a long-term share price recovery for Samsung depended on it regaining its competitive advantage.
“Most of Samsung’s businesses including memory chips, foundry, smartphone and display appear to be in decline. They need to find ways to strengthen their technological edge again to entice investors to continue to buy the shares,” said Albert Yong, managing partner at Samsung investor Petra Capital Management.
Namuh Rhee, head of the Korea Corporate Governance Forum, noted that the buyback plan amounted to 3 per cent of Samsung’s Won338tn market capitalisation.
“Compared with its stock price decline so far, its market value and cash flow, this is too little, too late,” said Rhee.
