Holding 100 billion dollars in cash but skimping on rewards? Analysts publicly pressured SK Hynix (SKHY.US) to finalize shareholder return plans in Q3

The Zhitong Finance App learned that Korean chip maker SK Hynix (SKHY.US) announced on Friday that it will pay out a dividend of 375 won per share. The company also announced that it is actively evaluating measures to further enhance shareholder value; details will be finalized and announced in the third quarter.

In fact, South Korea's two largest memory chip giants have previously sent signals to increase shareholder returns.

Samsung said in its second-quarter earnings report released on July 30 that the company's board of directors and management are actively discussing specific measures for this year's shareholder return policy, including the payment of a special dividend and the next round of shareholder return plans. SK Hynix also said it is considering ways to further increase shareholder returns.

As the AI storage boom drove the profits of the two companies to soar, the market's expectations for dividends also rose.

Samsung and SK Hynix both recorded record operating profits in the second quarter, mainly due to strong demand for high-bandwidth memory (HBM). Samsung's operating profit for the first half of the year was about 146 trillion won (about 105.9 billion US dollars), while SK Hynix reached about 98 trillion won (about 71.1 billion US dollars).

According to LSEG data and its calculations, the combined net cash reserves of Samsung and SK Hynix are expected to reach 263 billion US dollars by the end of this year, more than double Nvidia's 102 billion US dollars, and at the same time exceed the sum of the remaining six US tech giants.

Profits explode with huge amounts of cash, but skimp on dividends? Analysts publicly shouted to increase feedback

The brokerage estimates that Samsung's free cash flow this year is about 200 trillion won (about 145 billion US dollars), while SK Hynix's free cash flow is expected to reach about 100 trillion won. Both companies plan to use 50% of free cash flow for shareholder returns. However, the major US memory chip manufacturer Micron Technology promised to raise this ratio to 100% as early as June of this year. The sharp gap has caused dissatisfaction among many investors.

Analysts believe that this contrast between high performance growth and dividend restraint has made the market speculate that management is not optimistic about the long-term sustainability of this round of AI storage dividends. This is also an important factor in the sharp retracement of the stock prices of South Korea's two major chip giants from historical highs.

J.P. Morgan cut SK Hynix's target share price this week and stated that “a clear position on capital allocation is essential to restore market confidence.”

Richard Claude, fund manager of asset management agency Junley Henderson, also publicly shouted that sticking to a 50% free cash flow rebate ratio would greatly reduce the efficiency of corporate balance sheet capital utilization. He called on SK Hynix to increase shareholder return ratio to 80% or more.