JP Morgan assessed that Samsung Electronics’ announced shareholder return plan of up to 110 trillion KRW (about 79.6 billion USD) meets expectations in total amount, but the lack of a share buyback plan and the lower-than-expected third-quarter return size could disappoint investors in the short term.
On Monday, JP Morgan maintained its target price of 40,000 KRW (about 29 USD) and an Overweight (OW) rating for Samsung Electronics. The firm anticipates a more detailed shareholder return policy to be unveiled in January 2027, coinciding with the fourth-quarter earnings season.
After the market close on August 21, Samsung Electronics disclosed its shareholder return plan for 2024-2026. The company intends to allocate between 90 and 110 trillion KRW (about 65.1 to 79.6 billion USD) for shareholder returns, contingent on its 2026 performance. Additionally, it plans to distribute 30 trillion KRW (about 21.7 billion USD) in dividends following its third-quarter earnings announcement.
The remaining 60-80 trillion KRW (about 43.4 to 57.9 billion USD) will be subject to review for potential share buybacks and dividends. Samsung plans to announce specific details in January next year, once the 2026 results are finalized.
JP Morgan noted that while the upper limit of 110 trillion KRW (about 79.6 billion USD) aligns with their estimates, the confirmed 30 trillion KRW (about 21.7 billion USD) return for the third quarter falls short of heightened market expectations.
The firm pointed out that the 30 trillion KRW (about 21.7 billion USD) represents about 25% of the first-half operating cash flow, excluding capital expenditures. This figure is below Samsung’s existing policy of returning 50% of free cash flow (FCF). JP Morgan added that the absence of a share buyback announcement and the unchanged 50% FCF return target could disappoint some investors.
Moreover, JP Morgan expressed uncertainty about Samsung management’s preference for dividends over share buybacks. They suggested that many investors might favor share buybacks as a more effective means to enhance shareholder value, particularly given the current undervaluation of Samsung’s stock.
Regarding Samsung Electronics’ second-quarter performance, JP Morgan deemed it better than market concerns. Despite accounting for labor-related provisions, memory performance remained robust. The firm also noted signs of improved execution in the high-bandwidth memory (HBM) and foundry businesses.
JP Morgan commended Samsung’s strategy of maintaining a balanced product mix between HBM and general-purpose dynamic random access memory (DRAM), along with its proactive approach to long-term supply agreements (LTAs). These factors, according to the firm, increase confidence in the sustainability of the memory upcycle. They highlighted that Samsung’s LTA coverage goal of 60-70% ranks among the highest in the memory industry.
Looking ahead, JP Morgan identified several potential stock catalysts for Samsung. These include upcoming HBM contract price updates by the end of September, developments in memory content optimization and performance trade-offs, growing memory demand related to agentic central processing units (CPUs), plans for capital investment and production capacity, and progress towards profitability in new advanced process foundry contracts.
