[Edaily Reporter kyoungeun kim ] The discount rate of SamsungElectronics’ preferred shares relative to its common shares has narrowed by about 16 percentage points for the first time in five months. This is interpreted as the result of two factors: first, the easing of supply-and-demand pressure that had been concentrated on common shares as concerns about artificial intelligence (AI) profitability surfaced; and second, expectations for additional shareholder returns—such as the cancellation of treasury shares—centered on preferred shares.

According to MP Doctor on the 20th, the spread between SamsungElectronics’ common and preferred shares stood at 21.56% based on that day’s closing price, narrowing by 15.9 percentage points from the five-year high of 37.46% recorded on May 27. This is due to preferred shares holding up relatively well against the sharp decline in common stock prices. However, it remains high compared to the five-year average spread (approximately 17.40%).

The spread had narrowed to 5.56% on November 5, 2021, but widened significantly during the AI and semiconductor rally. Analysts attribute this to index and exchange-traded fund (ETF) funds concentrating on common stock—which offers higher liquidity and broader market representation—thereby widening the price gap with preferred stock. At the time, market observers also interpreted that ETF inflows had driven the rally centered on common stock.

The trend reversed as skepticism toward AI began to emerge. While SamsungElectronics’ common stock fell 41.2% from its all-time high, SamsungElectronics(1P) held up relatively well, dropping only 27.4%. This difference in the magnitude of the decline led to a narrowing of the discount rate.

In addition, expectations for expanded shareholder returns are emerging as a key factor in the revaluation of preferred shares. The British activist investment firm Palliser Capital has demanded that the remaining shareholder return funds for this year be allocated primarily to the purchase and cancellation of preferred shares, and that a target to reduce the preferred share discount rate be included in the shareholder return policy for 2027–2029. It also proposed a plan to use funds raised through the issuance of American Depositary Receipts (ADRs) in the U.S. to purchase and cancel additional domestic preferred shares.

Life Asset Management also proposed to SamsungElectronics last month that it use preferred shares for share buybacks and cancellations. The rationale is that this would allow the company to purchase more shares with the same amount of money, thereby significantly enhancing value per share. U.S.-based asset management firm Dalton Investment similarly argued in a recent Seohan that “in a situation where preferred shares are trading at a discount to common shares, intensively buying back and canceling preferred shares is beneficial to all shareholders.”

Voices within the securities industry are also placing weight on the possibility of preferred stock cancellation. Kim Soo-hyun, head of the Research Center at DS Investment & Securities, said, “Considering the issues related to the Industrial Finance Act that arise when common stock is canceled, we cannot rule out the possibility that the volume of preferred stock repurchases and cancellations will increase using SamsungElectronics’ treasury stock cancellation funds.”

Market attention is focused on the announcement of final third-quarter earnings and the conference call scheduled for the 29th. The key question is whether SamsungElectronics will specify the direction of its next shareholder return strategy at that time. On the 8th, SamsungElectronics announced a preliminary third-quarter operating profit of 107.4 trillion won. While expectations for the repurchase and cancellation of preferred shares or an increase in dividends are growing, specific shareholder return plans have not yet been determined.

The fact that the discount rate has narrowed does not mean the gap with common stock has disappeared. An industry official stated, “Since preferred stock lacks voting rights and has lower trading liquidity than common stock, a certain level of discount may persist,” adding, “If shareholder return funds are concentrated on preferred stock, there is a possibility that controversies regarding fairness toward common stock shareholders could arise.” Ultimately, analysts believe that the future direction of the discount rate depends not only on stock price trends but also on exactly which shares SamsungElectronics actually buys back and cancels, and in what quantities.