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Why Did Securities Firms Raise Samsung Electronics’ Target Stock Prices?
Background of Stock Split
Why Did Securities Firms Raise Samsung Electronics’ Target Stock Prices?
  • By Yoon Young-sil
  • May 4, 2018, 09:59
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The percentage of individual investors on the total Samsung Electronics shares traded will grow owing to positive expectations that the stock split would make the tech bellwether more accessible to retail investors.
The percentage of individual investors on the total Samsung Electronics shares traded will grow owing to positive expectations that the stock split would make the tech bellwether more accessible to retail investors.

Trading of Samsung Electronics shares will resume on May 4 after a halt for three business days from April 30, except for May 1 when the local stock market was closed in observance of Labor Day, due to a stock split. Expecting the positive supply-demand balance effects after the stock split, securities firms have raised the company’s target stock prices to some 70,000 won (US$65.09).

According to the country’s bourse operator Korea Exchange and investment banking industry sources on May 3, the price of Samsung Electronics shares is expected to be set between 37,100 won and 68,900 won (US$34.50 and US$64.06) after being relisted on the 4th following the stock split. The figures reflect plus and minus 30 percent of the daily price limits based on the standard price 53,000 won (US$49.28) that was divided by 50 to 1 on 2.65 million won (US$2,463.97), the closing price on April 27, the last business day before the trading was suspended.

Securities companies expect that the price of Samsung Electronics shares will rise after the stock split. This is because large-cap stocks of Samsung Electronics, which had been traded at over 2 million won (US$1,859.60), are forecast to become more accessible to ordinary retail investors, though the stock split itself is not related to the fundamental of the firm. According to NH Investment & Securities Co., individual investors accounted for only 16.02 percent of the total Samsung Electronics shares traded during the period when its stock price went up in earnest last year. However, the figure increased to 28.25 percent this year with the stock prices adjusted and drifted sideways. In particular, individual investors took up a whopping 34.96 percent of the total Samsung Electronics shares traded right before trading of Samsung Electronics shares was halted.

“The percentage of individual investors on the total Samsung Electronics shares traded grew owing to positive expectations that the stock split would make the tech bellwether more accessible to retail investors. An increasing number of individual investors was already expected to purchase more Samsung Electronics shares after the stock split,” said Choi Chang-gyu, an analyst at NH Investment and Securities.

Notably, the split will have a very positive effect on the price of Samsung Electronics shares thanks to not only its strong earnings projection in the coming quarter but also high expectations for its shareholder return policy. Accordingly, securities firms set the target prices of Samsung Electronics shares at some 70,000 won (US$65.09) after the stock split.

Park Won-jae, a researcher from Mirae Asset Daewoo Co., said, “When the split makes individual shareholders more accessible and lower the percentage of foreign investors, the risks of the governance structure will lower as well. The balanced supply and demand in the future will lead to lower uncertainties and Samsung Electronics’ sound performance is highly likely to reevaluate the stock prices.”

Eo Kyu-jin, an analyst at eBest Investment & Securities Co., said, “The stock split doesn’t affect the company’s fundamentals but Samsung Electronics’ price earnings ratio (PER) is excessively undervalued at a 6.5 times lower level this year at the moment. When Samsung Electronics see higher business showings, drastic shareholder return policy and higher trading volume after the split, there will be no reasons to undervalue Samsung Electronics anymore.”