SK Hynix's 40 Trillion Won Share Buyback and Cancellation Sends KOSPI Up 6%, Samsung Electronics Fuels Shareholder Return Expectations

KOSPI showed strength strong enough to trigger a buy-side sidecar intraday, rising as much as 6.6% before closing up over 6% at around 6,847 points. KOSDAQ also traded higher, though its intraday gain was more modest at 1-2%, settling around 838 points.

A notable feature was foreign investors turning to net buying on the exchange during the session, concentrating purchases on Samsung Electronics and SK Hynix. Foreign investors also showed a net-buy bias in the futures market, though they remained net sellers in the KOSDAQ market. The won-dollar exchange rate fell into the 1,300 won range, settling at around 1,395 won, stabilizing below the 1,400 won level.

Wrapping up earnings season, first-half listed company earnings rose 250% year-on-year; excluding Samsung Electronics and SK Hynix, revenue still grew 15% and operating profit 75%. Sectors including food, cosmetics, convenience stores, substrates, power equipment, semiconductor materials/parts/equipment, and refining were confirmed to have posted particularly solid results.

SK Hynix announced a planned share cancellation of 40 trillion won and began executing purchases immediately from the day of the announcement. First-day buyback applications totaled 650,000 shares, which at the prior closing price of 1.5 million won implies roughly 975 billion won purchased in a single day—a pace that would require averaging 645.2 billion won in daily purchases over the three-month acquisition period. The volume represents 3.3% of total outstanding shares, with the acquisition period set for three months starting August 20.

The more significant change was to the 2025-2027 shareholder return policy, shifting the standard from 'up to' 50% of cumulative free cash flow to '50% or more.' Returns will combine share buyback and cancellation with cash dividends, with specifics to be disclosed at the third-quarter earnings announcement. Based on Bloomberg consensus, cumulative free cash flow for 2025-2027 is projected to reach 473 trillion won, meaning up to 236 trillion won could be allocated to shareholder returns, according to market analysis.

Meritz Securities analyst Kim Sun-woo assessed the announcement as satisfying all three of timing, scale, and expectation. The view was that it offered an effective solution to undervaluation at an unexpected moment while also signaling further follow-up measures, making it both stable and beyond expectations. SK Hynix surged more than 13% on the day, touching 1.7 million won.

On air, it was noted that SK Hynix's 50%-or-more free cash flow standard uses a different calculation method from Micron's or SanDisk's 100%-of-excess-cash standard, so it cannot simply be judged as lower by comparison—in fact, the scale was said to exceed even the shareholder return plan of Kioxia, which had posted an earnings miss. The announcement was also characterized as a qualitative shift for SK Hynix into a stock directly linked to its earnings and performance, with the scale noted as comparable to the amount raised in its ADR capital increase at the time.

It was reported that Samsung Electronics will convene a board meeting in August to resolve on a shareholder return plan exceeding 100 trillion won, including a special cash dividend. On air, the suggestion was made that Samsung Electronics needs to lean primarily toward share cancellation, with the prospect raised that a share cancellation could also reopen discussion of the previously shelved stock split issue. Reuters also reported that Samsung Electronics raised foundry order prices by 10-15% for both 4nm and 5nm/8nm processes starting in July, and the stock surged about 9% on the day to recover to 270,000 won.

Moderna's personalized mRNA melanoma cancer vaccine, intismeran, confirmed meaningful results in delaying recurrence and metastasis in Phase 3 combination trials with Merck's Keytruda, sending Moderna shares up roughly 170% in a single day. The results came from a trial involving more than 1,000 participants, following earlier confirmation of efficacy in a roughly 150-participant Phase 2 trial.

The mRNA technology works by identifying specific proteins in a patient's own cancer cells and synthesizing a personalized vaccine trained on them, teaching the body's immune cells to attack those cancer cells. First popularized through COVID-19 vaccines, this is regarded as the first case proving the technology's efficacy in oncology, with trials for cancer types beyond melanoma reportedly also underway.

Domestically, Alteogen—a partner of Keytruda—was highlighted for its involvement in the combination trial, surging more than 10%, and attention turned to whether this would positively affect the KOSDAQ index given Alteogen's status as the largest company by market cap on KOSDAQ. Merck also surged about 12% to a record high, aided by a contract structure under which it shares a substantial portion of the revenue upon commercialization.

U.S. Treasury Secretary Bessent announced doubling the scale of long-term Treasury buybacks for 10-to-30-year bonds from a maximum of $2 billion per operation to a minimum of $4 billion. The measure takes effect September 9, interpreted as an effort to stabilize Treasury yields ahead of the November midterm elections. It comes as U.S. national debt has surpassed $40 trillion and cumulative Treasury interest payments over the trailing 12 months reached $1.4 trillion, reflecting a growing interest burden.

Three factors were cited behind rising Treasury yields: geopolitical instability stemming from the Middle East, concerns over increased Treasury issuance amid a widening U.S. fiscal deficit, and rising corporate bond issuance driven by massive AI-related capex investment—of these, only the Treasury supply-demand issue was noted as something the government can directly intervene to reverse. Following the announcement, U.S. 10-year yields dipped slightly to 4.63% and 30-year yields to 5.17%, with markets showing signs of relief.

The July FOMC minutes released the same day confirmed that, beyond the three dissenting votes favoring a hike, a majority of participants had actually preferred a 25bp increase, indicating the overall stance leans hawkish. However, the minutes attributed inflation drivers to Middle East-driven oil prices and rising inflation expectations, also noting that inflation could ease by year-end if these factors subside. Per CME FedWatch, the market implied holds in September and October, with a 47% probability of a December hike and 31% probability of a hold.

The minutes for the first time included language noting that a reassessment of AI valuations could pose risks to the broader financial system, which was interpreted as a sign the Fed is already aware of and monitoring AI-related asset valuation concerns within its scope of oversight. President Trump openly demanded rate cuts at a press conference, while allegations of insider trading within the Treasury Department also surfaced around the same time.

Based on a comparison table of shareholder return policies among the three major memory makers compiled by SK Securities analyst Han Dong-hee, it was explained that SK Hynix's 50%-or-more cumulative free cash flow standard uses a fundamentally different calculation method from Micron's 100%-of-excess-cash standard and SanDisk's 100%-of-excess-cash-after-investment standard. Free cash flow is operating cash flow minus capital expenditure, whereas excess cash is what remains after funds needed to maintain financial structure and business investment are excluded—meaning the baselines differ, and SK Hynix could in practice show an even higher return ratio, according to the analysis.

This approach resembles the method typically adopted by refiners, which are characterized by stable cash flow and large-scale capital expenditure, and was assessed as a balanced approach reflecting both SK Hynix's confidence in its earnings and its awareness of facility investment burdens. The 40 trillion won scale is equivalent to about half of Hyundai Motor's market capitalization, and more than half of the market capitalizations of LG Energy Solution and Samsung Biologics, amounting to roughly 1 trillion won in net purchases per day over the coming three months, it was explained.

Corporate earnings are split among three parties—workers, suppliers, and shareholders—and shareholder returns broadly fall into two categories: cash dividends and share buyback and cancellation. Cash dividends offer the certainty of cash landing directly in an account, but their impact tends to be one-off given ex-dividend adjustments, and they carry a dividend income tax burden. Share buyback and cancellation, by contrast, reduces the float and improves supply-demand dynamics while raising earnings per share, making its effect more argued to be longer-lasting.

Korean listed companies have historically favored cash dividends over share cancellation, and the 2025 dividend payout ratio for KOSPI-listed companies stood at around 31%. However, excluding semiconductor firms, the payout ratio for most companies actually rose; it was semiconductor companies—posting large profits since last year without raising dividends—that were found to have dragged down the overall payout ratio.

In the United States, the outstanding share count of Russell 3000 companies has steadily declined over a long period, which analysis attributes to U.S. firms spending far more of their earnings on share buybacks and cancellations, a driver of long-term share price appreciation. For Samsung Electronics, brokerages estimate a maximum dividend yield of 7-9%, and over 10% for preferred shares, but the suggestion was made that a share cancellation approach would be more advantageous than dividends for boosting long-term share price momentum and resolving undervaluation.

Regarding concerns that share prices could fall in the short term following a shareholder return announcement, the counterargument was that a sustainable shareholder return policy would instead further boost momentum. Unlike earnings announcements, long-term shareholder return policy announcements are not one-off events but exert continuous influence, making the proportion of share buyback and cancellation within the semiconductor firms' upcoming shareholder return plans the key point to watch.