Eye-popping shareholder-return plans from Samsung Electronics and SK Hynix have become an early test of South Korea’s corporate reform drive, with investors welcoming the windfall but saying more is needed to narrow the country’s decades-old valuation gap.
An AI-driven boom has left South Korea’s two largest companies flush with cash, fuelling investor demands for larger payouts.
Yet the plans, worth more than 130 trillion won ($97 billion) combined for this year alone, have not fully satisfied investors. South Korea’s benchmark KOSPI, in which the two chipmakers account for nearly half of the index’s weighting, remains about 26% below the record high reached in June.
The muted reaction underscores the challenge facing President Lee Jae Myung’s “Value-Up” programme, launched in 2024 to tackle the so-called Korea discount, under which Korean stocks trade at lower valuations than global peers because of concerns over corporate governance, capital allocation and shareholder rights.
“The Korea discount is unlikely to disappear in the near
term simply because Samsung and Hynix return more cash,” said
Clarence Li, lead portfolio analyst at T. Rowe Price.
“It remains partly structural and will require sustained
evidence across a much broader group of companies to
participate,” Li said, adding the plans were a step in the right
direction.
South Korean stocks are among the world’s best performers
this year, gaining 67% on the back of the AI boom and rising
earnings expectations. Even so, the KOSPI trades at just 4.3
times expected 2027 earnings, the lowest valuation multiple in
the region and well below the Asia-Pacific index’s 11 times,
according to Goldman Sachs data.
The gap highlights how much work remains to lift Korean
corporate valuations, with investors unconvinced that other
companies will follow the chipmakers’ lead.
“I would separate the very large absolute returns from
Samsung and Hynix from the success of Korea’s Value-Up
programme,” said Sammy Suzuki, head of emerging markets equities
at AllianceBernstein.
“Much of the size of these payouts reflects the exceptional
memory cycle and resulting cash generation rather than a
fundamental change in capital-return philosophy. That partly
explains why investors are still asking, ‘Is this enough?'”
“ACHILLES’ HEEL”
While Samsung’s record payout plan has been hailed as a
milestone, some investors and analysts said the policy lacks
detail and may rely heavily on special dividends that appear to
benefit its controlling family more than minority shareholders.
Samsung is distributing around 30 trillion won in cash
dividends this quarter as part of an estimated 90 trillion to
110 trillion won return programme for 2026. Details of the
remaining capital returns will be finalised in January.
“Samsung’s announcement is very disappointing,” said Kim
Kyu-shik, portfolio manager at Singapore-based hedge fund Vista
Global Asset Management.
The lack of any commitment to buyback sends a “negative
signal” that Samsung does not view its shares as undervalued,
Kim said, describing the conglomerate’s ownership structure as
an “Achilles’ heel” that limits its ability to repurchase
shares.
A large buyback and cancellation programme could push
holdings by key shareholders Samsung Life and
Samsung Fire above regulatory ownership limits,
potentially forcing them to reduce their stakes below 10%.
Such a move could draw greater regulatory scrutiny of
Samsung Electronics’ ownership structure and disrupt the
family’s control of its crown jewel, analysts and investors say.
“Samsung Electronics’ shareholder returns are determined
with shareholders at the center. Whether financial affiliates
sell their stakes to comply with regulations is not a factor in
that decision,” Samsung said in a statement to Reuters.
“A buyback is one of several tools available to us, not the
only one, and our 2026 plan already combines a substantial cash
dividend,” it said, adding it is committed to “implementing a
return policy that includes dividends and share
buyback/cancellation.”
WHAT ABOUT THE REST?
Investors said the longer-term success of the Value-up
programme, which pushes companies towards improved governance
and better capital allocation, will depend on whether other
companies follow suit, particularly because participation
remains voluntary.
“It is only going to be one of these two companies that
takes the lead, so I think, the numbers announced so far have
been disappointing,” Aadil Ebrahim, group head of equities at
Klay Group, said, saying Samsung should be more aggressive on
the buybacks than the dividends.
“Because I believe a lot of other corporations will say,
‘Well, if these two guys are not doing it, then why should we
bother doing it?'”
Signs of change are emerging. Korea Exchange data shows
companies have announced 39 trillion won ($29.1 billion) of
share buybacks so far this year, exceeding the combined total
for 2024 and 2025.
Yi Ping Liao, a portfolio manager at Templeton Global
Investments, said poor capital allocation is also becoming
harder for companies to get away with, noting that firms
proposing unfavourable spin-offs, acquisitions or rights
offerings are facing the heat from minority investors.
Still, investors cautioned that structural challenges
remain, citing issues including board oversight, concentrated
ownership, chaebol ownership and minority shareholder
protection.
“I think the onus is on the companies to enact and implement
their own value-up plans,” Liao said. “It’s moved from policy
reform to proof of execution.”
($1 = 1,345.3500 won)
(Reporting by Ankur Banerjee in Singapore, HyunJoo Jin in
Seoul and Tanishk Kumar in Bengaluru, Additional reporting by
Jihoon Lee in Seoul; Editing by Miyoung Kim and Stephen Coates)
Source: Khaleej Times