SK innovation, HD HCEE to buy back and sell shares

[Photo by Yonhap]

South Korea’s SK innovation Co. and HD Hyundai Construction Equipment Co. will carry out a buy back and sell their own shares for the first time since their founding, ahead of the upcoming government announcement of corporate value-up programs aimed at resolving undervaluation of Korean stocks scheduled at the end of February 2024.

During its earnings conference call on Tuesday, SK innovation announced that the company will buy back all its own shares within the range of distributable profits from the year 2023 in place of cash or in-kind dividend payouts. The number of shares to be bought back is 4,919,974, with a book value of 793.6 billion won ($596.7 million). This surpasses the previously announced dividend payout ratio of 30 percent, and the shareholder return rate including dividends and buybacks based on 2023’s performance is 319 percent.

HD Hyundai Construction Equipment also decided to carry out share buybacks for the first time since it was spun off from HD Hyundai Heavy Industries Co. in 2017. According to its regulatory filings on Tuesday, the company board agreed to buy back and sell 592,000 shares, worth a total of 30.3 billion won.

The sale of buyback shares is seen as a strong shareholder return measure compared to buybacks alone or dividend payouts. By reducing the number of shares in circulation, it bolsters earnings per share (EPS) and typically leads to a rise in stock prices. The recent, growing demand among small shareholders for companies to sell buyback shares stems from this value-boosting effect.

In reference to SK Innovation’s share buyback and sale, the company’s chief financial officer Kim Jin-won said that the move is to “respond to the recent government’s policy to resolve undervaluation of Korean stocks and enhance shareholder value as previously promised,” while emphasizing the company’s ongoing efforts to safeguard investor rights and bolster shareholder value.

HD Hyundai Construction Equipment plans to sell 853,697 buyback shares on April 30th, 2024, with the company selling a total of 1,445,697 shares accounting for about 7.3 percent of its total issued shares.

Behind the company’s proactive approach to enhancing shareholder value is its solid performance, HD Hyundai Construction Equipment’s operating profit increased by 50.8 percent in 2023 compared to the previous year to 257.2 billion won, while sales increased by 8.8 percent over the same period to 3.83 trillion won and net profit rose by 28.3 percent over the same period to 127.5 billion won. “We have decided to use 30 percent of net profit to enhance shareholder value, taking into account various conditions, including the profit scale, investment plans, and financial structure,” an official from the company said.

The Korean companies’ proactive steps to safeguard small shareholders’ rights align with the government’s push to enhance corporate value. While initially prevalent in the financial sector, this trend is now expanding to various other industries. “Most companies that have buyback shares are now considering sale,” according to an industry insider. Against this backdrop, stock prices of companies holding significant buyback shares are trending upward even though official plans for sale were not announced.

“Companies that actively engage in proportionate shareholder returns in line with their performance are likely to enjoy re-evaluation of their stocks,” Heungkuk Securities Co. analyst Park Jong-ryul said, highlighting an ideal governance structure, improvement in return on equity, and open communication with investors.

Fellow HD Hyundai Group subsidiary HD Hyundai Infracore Co. also announced plans to sell its buyback shares. According to its regulatory filings on Friday, the company plans to acquire 7,244,501 shares worth 56 billion won and then sell them.