Plans for Share Buyback and Retirement
The authors are analysts of Shinhan Investment Corp. They can be reached at sh.kim@shinhan.com and mintz95@shinhan.com, respectively. -- Ed.
Plans for share buyback and retirement
SK announced plans for annual share buyback equivalent to 1% or more of its market cap in a bid to enhance enterprise value by 2025. Based on the current market cap, over KRW180bn is expected to be spent in buying back shares. Partial retirement of about 25% of treasury shares or gradual increase in the amount of retirement seem to be under review. SK recently decided to give treasury shares as bonuses to the CEO and executives of subsidiaries in a move to place greater responsibilities on management for enhancing enterprise value.
Dividend income and gains from IPOs of subsidiaries to be used for shareholder benefits
SK seeks to utilize over 30% of ordinary dividend income from subsidiaries to fund dividend payments to shareholders through 2025. Annual ordinary dividend income excluding one-offs is estimated to be between KRW800bn and KRW1tr, 30% of which translates to KRW5,000 per share.
In addition, gains incurred in the process of initial public offerings (IPO) of subsidiaries as well as gains from selling part of shares post-IPO will go into funding dividend payout, like SK did in 2021 with gains from selling a portion of SK Biopharmaceuticals shares. Annual dividend per share (DPS) in 2021 reached an all-time high of KRW8,000, a twofold increase in four years from 2017. With major subsidiaries including SK Pharmteco, SK Siltron, and SK Ecoplant planning to go public in the near future, we expect to see a gradual increase in DPS.
Expectations for business expansion into bio CMO, advanced materials and green energy
For 2021, SK reported sales of KRW98.3tr (+21.7% YoY) and operating profit of KRW4.9tr (positive swing) on a consolidated basis. SK Pharmteco, which is on a steep growth track, generated sales of about KRW780bn (+19% YoY) and successfully expanded its business and global presence with acquisitions of French CDMO Yposkesi and American CDMO Center for Breakthrough Medicines (CBM) in March and December 2021, respectively. As for SK Materials and SK Siltron, both sales and EBITDA are continuing on an uptrend. In 2022, SK will likely continue to make investments to expand their footing in businesses such as renewable energy, environmental technologies (waste management), sustainable food, and CO2 capture technologies.