The AI-driven memory chip super-cycle is substantially boosting the earnings and cash generation capabilities of both Samsung Electronics and SK hynix, paving the way for the two companies to introduce record-breaking shareholder returns.
According to a report on Monday from the South Korean publication Seoul Economic Daily, Samsung Electronics and SK hynix are expected to announce new shareholder return programs by the end of August. The combined value of these returns could surpass 200 trillion won (approximately $141.2 billion), potentially setting a new historical high. Both companies have stated that the specific timing and scale of the announcements have not yet been finalized.
Market expectations for massive shareholder returns are rapidly heating up. Simultaneously, Singapore's sovereign wealth fund, Temasek, is planning to invest directly in the South Korean stock market for the first time, with intentions to build positions in Samsung Electronics and SK hynix. Boosted by these two pieces of news, the share prices of both companies rose by approximately 6% on the day, helping the Korea Composite Stock Price Index (KOSPI) surpass the 6,500-point mark.
Samsung Electronics: Potential Returns Could Exceed 100 Trillion Won
The expectation for substantial returns from Samsung Electronics primarily stems from the rapid growth of its free cash flow (FCF).
Reports indicate that during a recent non-deal roadshow (NDR) for the second quarter results held with domestic institutional investors, Samsung mentioned that it would formulate a shareholder return plan based on FCF growth. Industry analysts anticipate that Samsung's total shareholder returns this year could exceed 100 trillion won, with some estimates reaching as high as 120 trillion won.
Under Samsung's current shareholder return policy for 2024 to 2026, the company plans to return 50% of its cumulative FCF over the three years to shareholders while maintaining an annual regular dividend of 9.8 trillion won. If surplus funds remain after deducting regular dividends and other returns, the company will also consider additional payouts.
Strong earnings growth further reinforces this expectation. Samsung's second-quarter revenue of 171.5 trillion won and operating profit of 89.5 trillion won both set new historical records. With rising memory prices and growing demand for AI-related high-value-added chips, the market forecasts Samsung's full-year FCF will exceed 200 trillion won, with some estimates nearing 250 trillion won. This would correspond to a return ratio of 50%, translating to approximately 100 trillion to 125 trillion won.
In terms of return methods, special dividends, along with share buybacks and cancellations, are considered the primary options.
SK hynix: Improving Cash Flow Opens Up Return Potential
SK hynix is also expected to launch tens of trillions of won in additional returns.
The company had previously set its shareholder return policy for 2025 to 2027, increasing the annual fixed dividend from 1,200 won per share to 1,500 won per share and committing to returning 50% of its cumulative FCF over the three years to shareholders.
As demand for AI memory continues to grow, SK hynix's cash position has rapidly improved. The company's second-quarter revenue was 79.3 trillion won, with an operating profit of 60.5 trillion won. As of the end of the second quarter, cash and cash equivalents stood at 88 trillion won, a sequential increase of 33.6 trillion won. Borrowings fell to 18.6 trillion won, and net cash expanded to 69.4 trillion won.
Additionally, SK hynix recently secured approximately 39.9 trillion won through the issuance of new American Depositary Receipt (ADR) shares on the Nasdaq. While these funds will be prioritized for expansion projects such as the Yongin wafer fab, the Cheongju advanced packaging facility, and EUV equipment, the continuously growing operating cash flow still provides greater room for additional shareholder returns.
The market anticipates that SK hynix may implement tens of trillions of won in returns through special dividends, share buybacks, and cancellations, with the potential scale approaching 100 trillion won in an extreme scenario.
Balancing Returns and Capacity Expansion
Both companies are currently at the peak of their earnings and cash flow cycles. However, the cyclical nature of the semiconductor industry dictates that they must continue investing in the next round of production capacity.
Therefore, the key to the final plan is not just the magnitude of the returns, but also how cash is allocated between shareholder returns and capital expenditure. In particular, the ratio of special dividends to share buybacks will directly influence the market's assessment of the companies' future valuation and capital allocation capabilities.
If the combined return plan exceeding 200 trillion won materializes, it would also signify that the AI memory super-cycle is extending from the earnings side to the capital return side.
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