[Edaily Reporter Kim Kyung-eun ] Forecasts indicate that Samsung Life Insurance(032830)and SamsungFire&MarineInsurance(000810)will receive dividends totaling trillions of won as a result of SamsungElectronics(005930)’s large-scale shareholder returns. Analysts suggest that, depending on the method SamsungElectronics chooses for its additional shareholder returns, the companies could see not only special dividends but also capital gains from the sale of shares exceeding the ownership limits set by the Act on the Improvement of the Structure of the Financial Industry (the Financial-Industrial Separation Act).

On the 24th, Daol Investment & Securities raised its target price for Samsung Life Insurance from 400,000 won to 450,000 won and for SamsungFire&MarineInsurance from 820,000 won to 850,000 won, reflecting the increase in dividend income resulting from SamsungElectronics’ expanded shareholder returns. The firm maintained a “Buy” rating for both stocks. Based on the closing prices on the 21st, the upside potential stands at 37.0% for Samsung Life Insurance and 28.6% for SamsungFire&MarineInsurance.

SamsungElectronics announced in a filing on the 21st that it expects to return between 90 trillion and 110 trillion won to shareholders this year. First, the company plans to distribute approximately 30 trillion won in cash dividends, including the regular third-quarter dividend, with specific details to be decided at a board meeting in late October. The scale of shareholder returns using the remaining funds, as well as the specific methods—such as cash dividends, share buybacks, and cancellations—will be determined at a board meeting in late January of next year.

Samsung Life Insurance, which holds an 8.51% stake in SamsungElectronics, and SamsungFire&MarineInsurance, which holds a 1.49% stake, are also expected to benefit directly. Daol Investment & Securities estimated that if SamsungElectronics pays approximately 30 trillion won in cash dividends in the third quarter, Samsung Life Insurance would receive 2.55 trillion won and SamsungFire&MarineInsurance would receive 450 billion won, respectively. Looking solely at the additional special dividend—excluding the regular dividend—the amounts would be 2.34 trillion won and 410 billion won, respectively. The report explains that, considering the actual timing of dividend receipt, these amounts are likely to be recognized as dividend income in the fourth quarter of this year.

Reflecting the receipt of dividends from SamsungElectronics, the firm has raised its annual profit forecasts for Samsung Life Insurance and SamsungFire&MarineInsurance this year. Samsung Life Insurance’s annual profit forecast was raised from approximately 2.9 trillion won to 4.5 trillion won, while SamsungFire&MarineInsurance’s was raised from 2.5 trillion won to 2.8 trillion won.

The key issue is SamsungElectronics’ remaining shareholder return funds, which have not yet been determined. Based on SamsungElectronics’ disclosures, Daol Investment & Securities estimated this year’s free cash flow (FCF) to be approximately 182 trillion to 222 trillion won. Excluding regular dividends and other items, the remaining funds available for shareholder returns were estimated at approximately 81 trillion to 101 trillion won. Of this amount, after subtracting the 5.3 trillion won worth of treasury shares retired last April and the estimated 27.6 trillion won in additional cash dividends for the third quarter, the funds for which future usage has not yet been determined amount to approximately 48 trillion to 68 trillion won.

The amount of additional dividends received by Samsung Life Insurance and SamsungFire&MarineInsurance will vary depending on how these funds are allocated between special dividends and the buyback and cancellation of treasury stock. Daol Investment & Securities analyzed various scenarios based on the assumption that the entire 48 trillion to 68 trillion won in remaining funds would be used for shareholder returns. The analysis estimated that if 70% of the funds were allocated to special dividends, Samsung Life Insurance would receive approximately 3.5 trillion won in additional special dividends, while SamsungFire&MarineInsurance would receive 600 billion won. If the proportion of special dividends is 50%, the amounts would be approximately 2.5 trillion won and 400 billion won, respectively.

If the proportion of treasury stock cancellations increases, the issue of Samsung Life Insurance and SamsungFire&MarineInsurance holding SamsungElectronics shares in excess of the limits set by the Industrial Finance Holding Act could come to the fore. This is because canceling treasury stock reduces the total number of issued shares, which could result in Samsung Life Insurance and SamsungFire&MarineInsurance holding a relatively higher stake in SamsungElectronics.

Daol Investment & Securities assessed that a scenario of 70% special dividends and 30% treasury stock cancellation is possible if SamsungElectronics does not purchase additional treasury stock but only cancels the shares it currently holds. In this case, assuming the disposal of shares exceeding the 10% limit under the Industrial and Financial Interlocking Act, the estimated gains from the disposal of SamsungElectronics shares would be 1.49 trillion won for Samsung Life Insurance and 260 billion won for SamsungFire&MarineInsurance. However, the actual amounts may vary depending on SamsungElectronics’ shareholder return strategy and the future decisions of each company.

Kim Ji-won, an analyst at Daol Investment & Securities, said regarding the use of SamsungElectronics’ remaining funds, “The scale of the shareholder return allocation and the proportion allocated to each shareholder return policy are important.”