Samsung SDS shares weak as shareholders sell to pay inheritance tax

Samsung SDS Co. headquarters in Seoul [Courtesy of Samsung SDS]

Shares of Samsung SDS Co., a computer software arm of Samsung Group, has experienced a significant drop, losing more than 70 percent from its all-time high due to potential overhang risks posed by the management of Samsung Group.

According to the Korea Exchange on Tuesday, the company’s stock fell by about 3 percent this year, extending its losing streak for a fifth year since 2019, with a sharp drop of 72 percent compared with an all-time high after its initial public offering in November 2014.

The decline in shares is due to overhang issues caused by major shareholders who have continuously sold their shares to pay for inheritance taxes. Institutional investors, including banks and pension funds, have been selling Samsung SDS shares en masse, making it difficult for the stock to rebound.

According to Samsung SDS’s financial report last year, Jay Y. Lee, executive chairman of Samsung Electronics Co., holds the largest number of shares among related parties, with 7.11 million shares, or 9.2 percent. Lee Boo-jin, chief executive officer of Hotel Shilla, holds 1.51 million shares or 1.95 percent, and Lee Seo-hyun, head of Samsung Welfare Foundation, had the same stake as Lee Boo-jin but sold some of her stake for about 177.7 billion won in a block deal last month. However, the market still sees about 10 percent of Samsung SDS shares as a burden.

Local securities firms lowered their target prices on Samsung SDS although a buy rating was maintained. Shinhan Securities Co. slashed its target price to 160,000 won from 180,000 won, while KB Securities Co. lowered its target price to 170,000 won from 175,000 won.

The company’s cloud business, which is emerging as a new future growth, may be the key to stopping the falling stock. Samsung SDS plans to increase its corporate value by expanding its cloud business. Although the company’s profitability in the first quarter of this year declined, revenue from its cloud business soared by 64.7 percent from a year ago. The proportion of cloud business revenue, which was only 17 percent in the first quarter of last year, already surged to 28 percent of the total.

“We expect a high-growth rate of 33 percent in Samsung SDS’s cloud sales this year, similar to last year’s growth, which could lead to a re-rating of the company’s corporate value,” said Oh Kang-ho, a Shinhan Securities analyst.