The rise of the artificial intelligence has promoted cash generation from Samsung Electronics y SK Hynix who are preparing significant payouts to their shareholders. Their joint plans exceed 130 billion won, about 97 million dollars for this year. However, investors expect more than just higher dividends, they want lasting changes in how South Korean companies are managed.
Capital distributions test efforts to reduce the so-called “Korea discount,” the lower valuation that the country’s stocks receive compared to comparable companies in other markets.
The contrast is significant, despite the strength of the semiconductor business, the KOSPI remains around 26% below its all-time high reached in June. Samsung Electronics and SK Hynix account for almost half of the index’s weighting.
AI boosts cash flow at Samsung and SK Hynix
The demand for chips linked to the artificial intelligence this has strengthened the accounts of both manufacturers. This abundance of cash has also increased shareholder pressure for the companies to allocate more resources to dividends, share buybacks, and share write-offs.
The question for investors is how much of this remuneration is due to the exceptional moment in the business and how much reflects a permanent change in capital policy.
Sammy Suzuki, head of emerging market equities at AllianceBernstein, noted that a significant portion of the distributions is linked to the favorable memory market cycle and the cash it generates.
That’s why managers are looking for commitments that go beyond current results, they want to know how companies will act when industry conditions are no longer so favorable.
The “Korean discount” demands more than dividends
The ads Samsung and SK Hynix are proof for the South Korea’s Value-Up program, which seeks to improve corporate governance and capital allocation.
Among the reasons investors attribute to the discounting of the South Korean stock market are the concentration of ownership, oversight of boards of directors, and protection of minority shareholders. The structure of the large family conglomerates, known as chaebol, also plays a role.
South Korean stocks have gained around 67% this year, boosted by AI and improved earnings prospects, even so, the valuation gap persists, according to data from Goldman Sachs .KOSPI is trading at approximately 4.3 times its projected earnings for 2027, compared to approximately 11 times the Asia-Pacific index.
For investors, closing that gap requires verifying that the improvements are not limited to two companies favored by the technological cycle, but rather reach the entire market.
Samsung expects dividends of 30 billion won
Samsung Electronics will distribute around 30 billion won in cash dividends this quarter the payment is part of a capital return program estimated at between 90 and 110 billion won by 2026. Details regarding the remaining remuneration will be defined in January. Some fund managers, however, believe that the lack of a concrete commitment to share buybacks weakens the announcement.
Samsung’s ownership structure adds difficulties, a buyback followed by a large-scale share write-down could increase Samsung Life and Samsung Fire’s percentage stakes above certain regulatory limits, forcing them to reduce their positions.
Samsung maintains that it defines its remuneration policy with shareholders in mind and that it keeps share buybacks among its tools, along with dividends and share redemption.
The market expects other companies to follow suit
The scope of the Value-Up program will depend on what happens outside of Samsung and SK Hynix, participation remains voluntary, and investors are watching to see if companies in other sectors will make clearer commitments on the use of capital and the rights of minority shareholders.
There are signs of progress, according to data from the Korean Stock Exchange, South Korean companies have announced buybacks of about 39 billion won this year, a figure higher than the combined total for 2024 and 2025.
But the increase in share buybacks does not by itself resolve issues related to the control of conglomerates, the independence of boards, or the protection of minority investors.
The distributions by Samsung and SK Hynix demonstrate the sector’s ability to return capital, the remaining test is whether that ability will translate into policies that last once the current semiconductor boom ends.
Source: Reuters
Photo: Shutterstock
