Solidigm pre-IPO and IPO review scrapped

Dual-listing discount and dilution concerns expected to ease

Q3 earnings and shareholder returns on Wednesday seen as key to recovery

SK hynix headquarters. This photo is unrelated to the article. [Yonhap]
SK hynix headquarters. This photo is unrelated to the article. [Yonhap]

SK hynix announced Friday that it is scrapping plans to list its US-based subsidiary Solidigm on American stock exchanges — a move that had been pursued as a fundraising vehicle — raising hopes that the overhang from dual-listing concerns weighing on its share price may finally ease. With the Solidigm listing withdrawn, attention is now turning to the company's third-quarter earnings release on Wednesday and any additional shareholder return measures as potential catalysts for a share price recovery.

SK hynix disclosed before the market open that it was halting its review of a pre-IPO fundraising round and an initial public offering for Solidigm. After the announcement, SK hynix shares showed relative resilience compared with Samsung Electronics on the Kospi. The stock opened down about 2 percent at 1.2 million won ($906) before trimming losses during the session to briefly turn flat in morning trading, even as Samsung Electronics fell between 1 and 4 percent in early trade.

Concerns over dual-listing discounts, equity dilution and profit-sharing from a Solidigm listing had long weighed on SK hynix shares. The issue drew sustained criticism from politicians and financial regulators, with the negative aspects of the plan dominating public discourse. Financial Supervisory Service Governor Lee Chan-jin added to the controversy at a recent national audit, saying both the Financial Services Commission and the Financial Supervisory Service had concluded that Solidigm's listing would constitute a dual listing and that it fell under dual-listing guidelines.

Since Bloomberg reported on Oct. 7 (local time) that Solidigm was pursuing a US listing, SK hynix shares had fallen 30.35 percent on an opening-price basis through Friday. The decline was steeper than Samsung Electronics' 23.28 percent drop over the same period, amid concerns over US inflation-driven interest rate hikes, the funding burden for AI data center investment and the competitive threat from Chinese memory chip makers.

The industry expects the withdrawal of Solidigm's US listing to somewhat ease concerns about dual-listing discounts and equity dilution, though a sharp near-term rebound in the share price is not widely anticipated.

Yang Hyeon-gyeong, a researcher at iM Securities, said the Solidigm listing withdrawal "is a factor that can ease concerns related to SK hynix's dual listing," but cautioned that "the reduced opportunity to raise external capital and the potential for a heavier investment funding burden going forward must also be considered."

Domestic investor sentiment is also expected to remain focused on limiting losses in a falling market rather than rotating back into large-cap semiconductor stocks. Yang said that while easing dual-listing concerns could limit the downside for SK hynix, "selling pressure on semiconductors from the US could amplify volatility in large-cap names such as Samsung Electronics and SK hynix." She added that "if market unease persists, buying interest could shift toward stocks with stable earnings and cash flows, or defensive plays."

The tools available to fill the void left by the end of the buyback program are additional shareholder return measures and the third-quarter earnings release. SK hynix recently completed early its 40 trillion won buyback program, which had originally been scheduled to run through Nov. 19. For the first three trading days of next week, the market will have to rely solely on expectations for third-quarter results and shareholder returns to lift sentiment, without the price support that buyback demand had provided.

What the industry is most eager to see is how SK hynix deploys what is estimated to be around 30 trillion won in additional shareholder return resources. When SK hynix announced its 40 trillion won share acquisition and cancellation plan in August, it said further measures would combine share buybacks and cancellations with dividend payments. The industry is now anticipating a concrete plan that could include additional buybacks or an expanded dividend program encompassing existing fixed dividends and special dividends.

Third-quarter earnings, forecast to reach record highs, are the other key to a rebound. Following Samsung Electronics, which is expected to post operating profit exceeding 100 trillion won for the third quarter, SK hynix is also projected to set an all-time earnings record. According to FnGuide, SK hynix's consolidated third-quarter earnings are expected to surge 301.76 percent in sales and 576.11 percent in operating profit compared with the same period last year. The consensus estimate puts sales at 98.23 trillion won and operating profit at 76.96 trillion won.

Analysts expect a combination of upward earnings revisions and shareholder returns to add momentum to a share price recovery. Kim Rok-ho, a researcher at Hana Securities, said SK hynix is set to announce additional shareholder return measures alongside its third-quarter results, and that "share buybacks and cancellations are likely to play a more important role than dividends." He added that next year's earnings forecasts, which have been revised down, are expected to be revised upward again after the third-quarter results are released.


kacew@heraldcorp.com