By Ankur Banerjee and Hyunjoo Jin
SINGAPORE/SEOUL, Sept 10 (Reuters) - Eye-popping shareholder-return plans from Samsung Electronics and SK Hynix have become an early test of South Korea's corporate reform drive, with investors welcoming the windfall but saying more is needed to narrow the country's decades-old valuation gap.
An AI-driven boom has left South Korea's two largest companies flush with cash, fuelling investor demands for larger payouts.
Yet the plans, worth more than 130 trillion won ($97
billion) combined for this year alone, have not fully satisfied investors. South Korea's benchmark KOSPI, in which the two chipmakers account for nearly half of the index's weighting, remains about 26% below the record high reached in June.
The muted reaction underscores the challenge facing President Lee Jae Myung's "Value-Up" programme, launched in 2024 to tackle the so-called Korea discount, under which Korean stocks trade at lower valuations than global peers because of concerns over corporate governance, capital allocation and shareholder rights.
"The Korea discount is unlikely to disappear in the near term simply because Samsung and Hynix return more cash," said Clarence Li, lead portfolio analyst at T. Rowe Price.
"It remains partly structural and will require sustained evidence across a much broader group of companies to participate," Li said, adding the plans were a step in the right direction.
South Korean stocks are among the world's best performers this year, gaining 67% on the back of the AI boom and rising earnings expectations. Even so, the KOSPI trades at just 4.3 times expected 2027 earnings, the lowest valuation multiple in the region and well below the Asia-Pacific index's 11 times, according to Goldman Sachs data.
The gap highlights how much work remains to lift Korean corporate valuations, with investors unconvinced that other companies will follow the chipmakers' lead.
"I would separate the very large absolute returns from Samsung and Hynix from the success of Korea's Value-Up programme," said Sammy Suzuki, head of emerging markets equities at AllianceBernstein.
"Much of the size of these payouts reflects the exceptional memory cycle and resulting cash generation rather than a fundamental change in capital-return philosophy. That partly explains why investors are still asking, 'Is this enough?'"
"ACHILLES' HEEL"
While Samsung's record payout plan has been hailed as a milestone, some investors and analysts said the policy lacks detail and may rely heavily on special dividends that appear to benefit its controlling family more than minority shareholders.
Samsung is distributing around 30 trillion won in cash dividends this quarter as part of an estimated 90 trillion to 110 trillion won return programme for 2026. Details of the remaining capital returns will be finalised in January.
"Samsung's announcement is very disappointing," said Kim Kyu-shik, portfolio manager at Singapore-based hedge fund Vista Global Asset Management.
The lack of any commitment to buyback sends a "negative signal" that Samsung does not view its shares as undervalued, Kim said, describing the conglomerate's ownership structure as an "Achilles' heel" that limits its ability to repurchase shares.
A large buyback and cancellation programme could push holdings by key shareholders Samsung Life and Samsung Fire above regulatory ownership limits, potentially forcing them to reduce their stakes below 10%.
Such a move could draw greater regulatory scrutiny of Samsung Electronics’ ownership structure and disrupt the family's control of its crown jewel, analysts and investors say.
"Samsung Electronics' shareholder returns are determined with shareholders at the center. Whether financial affiliates sell their stakes to comply with regulations is not a factor in that decision," Samsung said in a statement to Reuters.
"A buyback is one of several tools available to us, not the only one, and our 2026 plan already combines a substantial cash dividend," it said, adding it is committed to "implementing a return policy that includes dividends and share buyback/cancellation."
WHAT ABOUT THE REST?
Investors said the longer-term success of the Value-up programme, which pushes companies towards improved governance and better capital allocation, will depend on whether other companies follow suit, particularly because participation remains voluntary.
"It is only going to be one of these two companies that takes the lead, so I think, the numbers announced so far have been disappointing," Aadil Ebrahim, group head of equities at Klay Group, said, saying Samsung should be more aggressive on the buybacks than the dividends.
"Because I believe a lot of other corporations will say, 'Well, if these two guys are not doing it, then why should we bother doing it?'"
Signs of change are emerging. Korea Exchange data shows companies have announced 39 trillion won ($29.1 billion) of share buybacks so far this year, exceeding the combined total for 2024 and 2025.
Yi Ping Liao, a portfolio manager at Templeton Global Investments, said poor capital allocation is also becoming harder for companies to get away with, noting that firms proposing unfavourable spin-offs, acquisitions or rights offerings are facing the heat from minority investors.
Still, investors cautioned that structural challenges remain, citing issues including board oversight, concentrated ownership, chaebol ownership and minority shareholder protection.
"I think the onus is on the companies to enact and implement their own value-up plans," Liao said. "It's moved from policy reform to proof of execution."
($1 = 1,345.3500 won)
(Reporting by Ankur Banerjee in Singapore, HyunJoo Jin in Seoul and Tanishk Kumar in Bengaluru, Additional reporting by Jihoon Lee in Seoul; Editing by Miyoung Kim and Stephen Coates)
