SK hynix(000660) decided to buy back and cancel its own shares worth 40 trillion won. It is the largest shareholder return plan ever. Earlier, SK hynix listed American depositary receipts (ADR) on the U.S. stock market and raised 40 trillion won.
In particular, the shareholder return plan is seen as capital allocation favorable to existing shareholders. After raising a large amount of funds when the stock price was at a record high, the company is buying back and canceling its own shares after a pullback, allowing it to cancel more shares for the same money.
However, some say the shareholder return plan only restores the number of shares to the level before the new share issuance. Experts said the scale and method of additional shareholder returns the company will release, and resolving governance issues such as duplicate listings, will determine the stock's direction.
According to the Financial Supervisory Service's electronic disclosure system on the 20th, SK hynix disclosed that it decided the previous day to buy back and cancel 24,070,000 treasury shares on the open market. The purchase period runs from today to Nov. 19. The daily purchase order limit is 2,407,000 shares. Based on the closing price of 1,662,000 won per share on the 18th, the planned acquisition amount is about 40.43 trillion won. The actual size of the buyback may vary depending on the stock price.
The company's released buyback plan is being seen as capital allocation favorable to existing shareholders. In particular, the 40 trillion won buyback matches the funds secured when SK hynix listed ADR in the United States on July 10.
On July 10, SK hynix issued 17,790,000 new shares when listing ADR in the United States, raising 3.98905 trillion won. The ADR offering price was $149, and applying the then base exchange rate of 1,504 won, the company issued new shares at about 2.24 million won per common share. It effectively raised funds when the stock price was at a record high.
By contrast, before announcing the buyback, SK hynix closed at 1,662,000 won on the 18th. The stock price is about 35% lower than at the time of the ADR issuance. As a result, the company can cancel more shares with the same amount of money.
Lee Nam-woo, chair of the Korea Governance Forum, said, "Compared with when the ADR was issued, the current stock price has fallen significantly," and noted, "Even if the amount raised and the buyback size are similar, the lower stock price lets the company cancel more shares, which is friendly capital allocation for existing shareholders."
However, some criticize that the buyback and cancellation only reverses the shareholder value diluted by the new share issuance. A business administration professor who requested anonymity said, "By issuing new shares through the ADR earlier, the equity value of existing shareholders was diluted," and added, "This shareholder return plan only restores the value diluted at that time."
The professor added, "Since the company said it will release additional shareholder return plans, the scale and method of the measures to be announced later matter more."
SK hynix said it plans to return more than 50% of cumulative free cash flow (FCF) generated from 2025 to 2027. Along with buybacks and cancellations, it is reviewing ways to increase dividends. The specific additional return scale and method will be guided at the time of the third-quarter earnings announcement after a board resolution.
The market also sees SK hynix's shareholder returns reaching as much as 245 trillion won. Hanwha Investment & Securities estimates SK hynix's FCF at 2.88 trillion won in 2025, 191.6 trillion won in 2026, and 270.6 trillion won in 2027.
The resulting three-year cumulative FCF is about 491 trillion won, and applying the minimum return rate of 50%, total shareholder returns are at least about 245 trillion won.
In overseas capital markets, some say large shareholder returns alone are not enough to fundamentally re-rate SK hynix's corporate value. They argue the company must also resolve governance issues that trigger the so-called "Korea discount," such as potential duplicate listings between the parent and subsidiaries.
Lee said, "Even after the large shareholder return announcement, the stock reaction in the ADR market was limited," adding, "Ultimately, for SK hynix to be valued higher by the market, it needs to resolve uncertainties related to governance, such as the controversy over Soladigm's five-tier duplicate listings."