SK Hynix's share price is displayed on the trading board at Hana Bank's headquarters in Jung-gu, Seoul, on Thursday. [Yonhap]
SK Hynix's share price is displayed on the trading board at Hana Bank's headquarters in Jung-gu, Seoul, on Thursday. [Yonhap]

SK Hynix announced a 40 trillion won ($28.5 billion) share buyback and cancellation program — its largest-ever shareholder return — prompting brokerages to issue uniformly positive assessments Thursday, calling it "the starting point for a revaluation." The chipmaker's shares surged in early trading, and analysts are watching closely to see whether foreign investors — who net sold more than 3 trillion won worth of SK Hynix and Samsung Electronics shares on Wednesday — will return.

SK Hynix's board met Wednesday and resolved to buy back and cancel 40 trillion won in shares, filing the disclosure the same day. The buyback window runs from Wednesday through Nov. 19 — roughly three months — covering a planned 24.07 million shares, or 3.3 percent of total shares outstanding.

The company said it intends to cancel the repurchased shares within one to two weeks of completing each tranche of purchases. Canceling — rather than merely holding — buyback shares reduces the total number of shares among which profits are divided, boosting earnings per share and increasing the proportional ownership value held by existing shareholders.

Alongside the buyback, SK Hynix raised its shareholder return policy target from "up to 50 percent of cumulative free cash flow for 2025–2027" to "50 percent or more."

Kim Dong-won, an analyst at KB Securities, said the 40 trillion won early shareholder return program "reflects confidence in future cash-generating capacity and medium-to-long-term growth, and is expected to have a positive impact on future valuation rerating."

Kim projected SK Hynix's operating profit would reach 77 trillion won in the third quarter of this year — a 579 percent increase year-on-year — and 84 trillion won in the fourth quarter, up 336 percent. "Quarterly memory chip prices in the second half of this year are expected to rise by at least double digits," he said, adding that a memory chip supply shortage is forecast to deepen through 2028, which should strengthen earnings momentum.

Kim Rok-ho of Hana Securities said his firm had anticipated a buyback in the 20 trillion to 30 trillion won range, and the announcement exceeded that. "The share buyback is positive from a shareholder's perspective, and given that additional return policies are set to be shared going forward, the total is expected to surpass our initial estimates," he said.

Meritz Securities said the announcement was positive on three fronts: timing, perception and expectations. The brokerage said SK Hynix had proposed an effective remedy for its undervaluation at a moment the market did not anticipate, and raised expectations further by outlining additional follow-up measures.

Kim Seon-woo, an analyst at Meritz Securities, said the announcement came somewhat earlier than the company's original plan to disclose within the third quarter, and "the market is likely to treat this as a positive surprise." He added that the company is expected to complete the buyback in a compressed timeframe within the three-month window to support the share price, and that plans to introduce a capital reduction dividend policy next year — which would give shareholders a tax benefit on dividend income — were also impressive.

At a briefing on the shareholder return disclosure, SK Hynix was asked whether tax benefit considerations were factored in. The company said it was too early to say definitively, but noted that as of March it had 4 trillion won available for a capital reduction dividend, with additional resources expected to have been generated through new share issuances.

A capital reduction dividend returns cash to shareholders by reducing a company's paid-in capital rather than drawing from retained earnings as in a conventional dividend. Because it is treated as a "return of capital" under tax law, it is not subject to dividend income tax.

Samsung Securities characterized the shareholder return as a direct answer to concerns about an "AI bubble." Lee Jong-wook, an analyst at Samsung Securities, acknowledged that skepticism toward memory chipmakers had grown as the pace of DRAM price increases slowed and share prices corrected sharply. "This shareholder return is management's answer to that debate," he said, adding that the fact that SK Hynix, Kioxia, SanDisk and other memory companies had simultaneously launched massive shareholder return programs was evidence that the industry views this cycle's trajectory and profit levels as fundamentally different from the past.

Park Jun-young of Hanwha Investment Securities said the 40 trillion won buyback and cancellation should be seen not as a return on this year's free cash flow, but as an early deployment of a portion of the total return resources expected to accumulate over three years. "The estimated three-year cumulative free cash flow is approximately 491 trillion won," he said. "Even applying only the minimum return rate of 50 percent the company has indicated, total shareholder returns over the policy period are estimated at 245 trillion won or more."

The brokerages did not, however, immediately raise their target prices. IBK Investment Securities, Hana Securities, Hanwha Investment Securities and Samsung Securities maintained their targets at 4 million won, 3.6 million won, 3.15 million won and 3 million won, respectively.

At 9:43 a.m. Thursday — the first trading session after the shareholder return announcement — SK Hynix shares were up 9.33 percent at 1.64 million won, recovering Wednesday's decline of 9.74 percent. SK Hynix's American depositary receipts closed up 0.35 percent at $156.16 on the New York Stock Exchange on Wednesday, after briefly surging about 5 percent intraday to $163.80 before giving back most of the gains.

Foreign investor flows are also drawing attention in the wake of the announcement. Foreign investors net sold 1.83 trillion won worth of SK Hynix shares on Wednesday, and net sold 1.04 trillion won and 134 billion won in Samsung Electronics common and preferred shares, respectively — offloading a combined 3 trillion won from the two semiconductor giants in a single session.


jiyun@heraldcorp.com