[E-Daily Reporter Kim Kyung-eun ] Following the announcement by SamsungElectronics(005930)of its largest-ever shareholder return program, the securities industry raised target stock prices for its affiliates— Samsung Life Insurance(032830), SAMSUNG C&T CORPORATION(028260), and SamsungFire&MarineInsurance(000810) —one after another; however, the company’s stock price itself has plummeted. Despite forecasts that profits and the company’s capacity for its own shareholder returns will expand due to a significant increase in dividends received from SamsungElectronics, the market assesses that these measures are insufficient to meet already high expectations.

According to MP Doctor on the 24th, SamsungElectronics closed at 257,000 won, down 24,500 won (8.70%) from the previous trading day. Samsung Life Insurance, a major shareholder of SamsungElectronics, closed at 285,500 won, plunging 43,000 won (13.09%). SAMSUNG C&T CORPORATION and SamsungFire&MarineInsurance also fell 7.84% and 3.78%, respectively, compared to the previous session.

This marks the first trading day since SamsungElectronics announced its shareholder return plan after the market closed on the 21st, and related stocks have all shown weakness. The securities industry interprets this as a result of disappointment-driven selling, as SamsungElectronics’ shareholder return plan failed to meet market expectations.

Lee Kyung-min, an analyst at DaishinSecurities, explained, “Samsung affiliates across the board showed weakness as SamsungElectronics’ shareholder return policy fell short of market expectations,” adding, “With no specific details provided on share buybacks and cancellations, restrictions under the Act on the Improvement of the Structure of the Financial Industry—specifically the 10% ownership cap—also had an impact.” Although SamsungElectronics mentioned allocating 90 trillion to 110 trillion won for shareholder returns this year, this implies that it will be difficult to use these funds for aggressive share buybacks and cancellations under the Financial-Industrial Interlocking Act.

In contrast to the stock price, securities firms have been raising their target prices one after another to reflect the earnings improvement at affiliate companies resulting from SamsungElectronics’ shareholder returns. This is because a significant increase in dividends received from SamsungElectronics could expand the affiliate companies’ profits and their own capacity for shareholder returns.

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 on the same day. It maintained a “Buy” rating for both.

Daol Investment & Securities estimated that if SamsungElectronics pays cash dividends of approximately 30 trillion won 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 dividends, excluding regular dividends, the amounts would be 2.34 trillion won and 410 billion won, respectively. The firm also predicted that, in addition to dividends, capital gains could arise from the sale of shares exceeding the ownership limit under the Industrial Finance Act.

HANWHA INVESTMENT & SECURITIES also raised its target price for Samsung Life Insurance from 336,000 won to 363,000 won on the same day. The firm estimated that, due to SamsungElectronics’ increased dividends, Samsung Life Insurance’s fourth-quarter dividend income would rise by 2.0872 trillion won compared to a typical quarter. Reflecting this, it raised its forecast for Samsung Life Insurance’s consolidated net income by 56% for this year and 211% for next year, respectively, compared to previous estimates.

SamsungC&T CORPORATION, which holds a 5.11% stake in SamsungElectronics, is also expected to see a significant increase in its dividend per share (DPS). SKSecurities estimated that if SamsungElectronics pays out approximately 30 trillion won in dividends for the third quarter, SAMSUNG C&T CORPORATION’s annual dividend income from SamsungElectronics would reach 1.7 trillion won. Consequently, SKSecurities raised its target price for SAMSUNG C&T CORPORATION by 22.2%, from 450,000 won to 550,000 won.

Notably, SAMSUNG C&T CORPORATION implements a policy of redistributing up to 70% of the dividend income it receives from affiliated companies. Based on this assumption, this year’s DPS is expected to reach 8,550 won, a 205% increase from last year’s 2,800 won. This is nearly double the previous market forecast of 4,477 won.

Despite successive target price hikes by securities firms, the sharp drop in the stock price today is believed to stem from the perception that it remains uncertain whether the profit growth at affiliates resulting from SamsungElectronics’ shareholder returns will immediately translate into benefits for the shareholders of those affiliates.

HANWHA INVESTMENT & SECURITIES pointed out that while Samsung Life Insurance has proposed a medium- to long-term shareholder return rate of 50%, the timeline for achieving this target and the principles governing the distribution of special profits remain vague. This means that even if dividends received from SamsungElectronics increase, it is difficult to predict how much of that will be returned to Samsung Life Insurance shareholders.

Kim Do-ha, an analyst at HANWHA INVESTMENT & SECURITIES, said, “It is easy to calculate the benefits for Samsung Life Insurance, but it is difficult to do so for its shareholders,” adding, “We cannot guess the principles by which Samsung Life Insurance will distribute the massive profits it gains from SamsungElectronics’ shareholder returns.”