Decreased Market Capitalization
As Samsung Electronics recorded the biggest-ever drop in share price on July 29 since October last year, This was because the influence that leads to the purchase disappeared after the company completed the second purchase of treasury stocks, being bearish. All eyes are now on whether Samsung’s third purchase of treasury stocks will make its stock prices bounce back.
According to investment banking industry sources on the 31st, Samsung Electronics’ stock prices had continuously dropped for six trading days in a row from the 21st to the 28th, a day after the company completed the purchase of treasury stocks on the 20th. It was the longest period of drop after January 27 to February 5 in 2014. During the period, the company’s market capitalization declined by 22.48 trillion won (US$20.08 billion) from 334.51 trillion won (US$298.94 billion) to 312.36 trillion won (US$279.15 billion).
On the 28th when recorded the biggest drop this year, the KOSPI and Samsung Electronics’ market capitalization decreased by 27.99 trillion won (US$25.01 billion) and 13.33 trillion won (US$11.91 billion), respectively. Samsung Electronics made the index drop. The company began the third purchase of treasury stocks on the same day and bought 12,000 shares worth 40.8 billion won (US$36.46 million) but it was not enough to prevent the sharp drop of its stock prices of minus 4.1 percent.
Samsung Electronics’ stock prices remained bearish, though the company achieved the highest-ever quarterly operating profit of 14.07 trillion won (US$12.57 billion) on the previous day and announced to begin the third purchase of its treasury stocks. This was largely due to the net sale of foreigners. Foreign investors net sold 314.8 billion won (US$281.32 million) worth of Samsung Electronics’ shares on the same day. Foreigners’ net sale of Samsung Electronics’ shares continued for 11 days in a row. The net sale totaled 1.14 trillion won (US$1.02 billion). The figure accounts for 80 percent of 1.43 trillion won (US$1.28 billion) of the total net sale of foreigners in the KOSPI over the same period.
As the KOSPI continued the foreigner-oriented stock trends, Samsung Electronics’ purchase of treasury stocks pulled up its stock prices. Some industry watchers said the upward trend can slow down in the short term during the period when the company stopped purchasing its treasury stocks.
Samsung Electronics announced to buy 9.3 trillion won (US$8.31 billion) worth of treasury stocks this year and actually purchased 5 trillion won (US$4.47 billion) worth of treasury shares until the second purchase. However, foreign investors and institutional investors net sold 2.92 trillion won (US$2.61 billion) and 2.82 trillion won (US$2.52 billion), respectively, this year. Nevertheless, Samsung Electronics’ stock price rapidly rose by 32.51 percent. This is why investment banking industry experts expect that the company’s third purchase of treasury stocks will pull up its stock prices as well.
Samsung Electronics is planning to buy 2 trillion won (US$1.79 billion) worth of treasury stocks, including common stocks worth 1.67 trillion won (US$1.49 billion) and preferred stocks worth 332.3 billion won (US$297.23 million), by October 27.
Do Hyun-woo, an analyst at Mirae Asset Daewoo, said, “Under the current governance structure, shareholder return policies, such as purchase of treasury stocks and increase in dividends, will be strengthened. The company’s cash resources for shareholder return will significantly increase next year as well as the purchase of treasury stocks and dividends. It will positively affect its stock prices.”