Samsung's $7B share buyback a price drop stop gap: Analysts

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Samsung's $7B share buyback a price drop stop gap: Analysts

Published: 18 Nov. 2024, 18:33 Updated: 19 Nov. 2024, 09:58

LEE JAE-LIM
[email protected]

Korea’s national flag and a flag with Samsung Electronics’ logo situated at the chipmaker’s Seocho office building in southern Seoul on Oct. 31. [NEWS1]

Shares of Samsung Electronics rose nearly 6 percent on Monday after the chipmaker announced a multibillion-dollar share buyback last week. However, analysts consider this move a short-term tactic to boost the stock, cautioning that sustained growth will largely rely on a recovery in both the company’s chip production business and the broader global market.

Samsung’s shares rose 5.98 percent to close at 56,700 won ($40.60) on Monday compared to the previous trading day, when the chipmaker said that it will repurchase 10 trillion won in phases to boost its stock price from Monday throughout Feb. 17, 2025.

It will buy back and cancel shares worth 3 trillion won over the next three months to boost shareholder value, including 50.14 million common shares and 6.91 million preferred shares.

The allocation of the remaining 7 trillion won for the share repurchase has not been determined.

The chipmaker’s stock price has been in free fall, losing over 43 percent since its 52-week high of 87,800 won in July to hit a 52-week low of 49,900 won on Thursday.

The company’s price-to-book (P/B) ratio fell to 0.83 on Thursday, its lowest level since February 2016. A ratio below 1 indicates that the company's current market value is less than its net asset value.

The company's P/B ratio fell below 1 on five occasions, with the chipmaker responding with a buyback program four times; a 2.2 trillion won repurchase scheme between 2014 and 2015; 11 trillion won in shares bought up between 2015 and 2016 and 9 trillion won of stock repurchased between 2017 and 2018. Samsung Securities analyst Lee Jong-wook believes the recent case to be similar to the 2.45 trillion won buyback conducted from Nov. 27, 2014, to Feb. 26, 2015.

“The recent announcement serves to set a floor price at 50,000 won to provide psychological support for investors,” Lee said. “This strategy is seen as a tactic similar to the 2014 buyback, when the stock price had dropped over 15.5 percent over three months to reach a 52-week low, but rose by 14.5 percent in the following three months after the buyback announcement.”

However, analysts believe that this recent move will only act as a means to temporarily prevent a stock price drop, with its long-term growth to ultimately be determined through the company's earnings.

“To achieve sustained stock price growth, the company will need short-term improvements in the memory market, an enhanced performance in the high bandwidth memory [HBM] sector and a swift transition to advanced manufacturing processes,” NH Investment & Securities analyst Ryu Young-ho said. “In the medium to long term, the recovery of technological competitiveness and advancements in the chip manufacturing business will be key factors [of growth].”

KB Securities analyst Kim Dong-won projected the company's medium- to long-term growth momentum to come next year, taking the market lead in supplying sixth-generation HBM4 chips and a definite inventory decrease in Double Data Rate 4 (DDR4) and DDR5, two dynamic random access memory chips.

Shares of Samsung affiliates — Samsung Life Insurance and Samsung Fire & Marine Insurance — also surged by double digits on Monday, which respectively possess 8.51 percent and 1.49 percent of Samsung Electronics’ stock based on a business report in June.

Samsung Life Insurance shares spiked 11.48 percent to 108,800 won, and Samsung Fire & Marine Insurance rose 10.48 percent to 369,000 won.

BY LEE JAE-LIM [[email protected]]