(Bloomberg) — Samsung Electronics Co. shares surged after South Korea’s biggest company announced a surprise plan to purchase back about 10 trillion won ($7.2 billion) of its own stock over the subsequent yr.
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The stock rose as much as 7.5% in Seoul trading Monday, adding to a 7.2% jump Friday ahead of the news. The shares are still down about 28% this yr amid concerns that its memory chip business has fallen behind in the substitute intelligence market.
Analysts expect the buyback to offer a catalyst for the stock, while some noted that it may help the founding family tighten its grip. Shares of competitor SK Hynix Inc. have climbed about 23% this yr on investor enthusiasm for its AI chips.
“The sudden buyback comes as a positive surprise to us, and we imagine Samsung’s management is proactively aiming to stop further share price decline,” JPMorgan Chase & Co. analyst Jay Kwon wrote in a research note. “We imagine that the restructuring and strategy/motion plan to regain tech leadership will likely be more critical for the share price over the mid-to-long term.”
In the primary phase of the plan announced Friday, Samsung will buy back about 3 trillion won of shares until February 2025, all of which it’s going to cancel. The board will deliberate how best to deploy the remaining 7 trillion won.
Sanghyun Park of Clepsydra Capital, notes that the buyback will help the founding family strengthen its control of the corporate by reducing shares held externally. He also notes it could help them with collateral issues on loans tied to inheritance tax bills.
“Local desks have been buzzing since last week about Samsung potentially pulling a short-term price pop to cope with the family’s collateral squeeze,” Park wrote in a note on Smartkarma. “The stock’s probably gonna camp comfortably above the 53,000 won margin call danger zone for some time.”
Samsung can also be still struggling to catch as much as Taiwan Semiconductor Manufacturing Co. in outsourced chipmaking, in addition to fend off tough competition in sluggish markets for smartphones and other consumer electronics. While it recently said it has made “meaningful” progress in AI memory chips, some observers think management changes are coming soon.
“We anticipate the potential of a management reshuffle in late November, with potential for significant changes” in chip operations, Citigroup Inc. analyst Peter Lee wrote in a report. These moves together with the buyback needs to be “well-received by the market”.