Franklin Templeton's Liao favors SK hynix for cancelling its repurchased shares as buybacks wind down

The two programs end in different places. Samsung bought its stock for employee share compensation ^[1], so those shares go to staff. SK hynix will cancel everything acquired under its 40 trillion won program ^[2], which is about 2.7 times the size of Samsung's ^[25]. Yi Ping Liao, a Franklin Templeton portfolio manager who answered The Korea Herald's questions in writing ^[17], said cancellation permanently reduces shares outstanding and makes SK hynix's commitment more meaningful to shareholders ^[3]. "In particular, the Hynix buyback and cancellation has made us more positive," she said ^[15].

Korea Exchange figures show how much the corporate category carried in September. That month foreign investors were net sellers of 21.5 trillion won in Kospi shares, and individual investors of 14.2 trillion won ^[5], 35.7 trillion won between them ^[20]. Other corporations, a category that includes buybacks, bought a net 31.4 trillion won ^[5]. That is about 88 percent of the combined selling ^[21], and by subtraction every other kind of buyer took roughly 4.3 trillion won ^[26]. The exchange figures in the report do not separate the two chipmakers' purchases from the rest of the corporate total. "That does not mean the stocks have to fall, but from that point the market needs other investors to step in," Liao said ^[7].

Samsung's preliminary third quarter is what those investors have to go on. Operating profit of 107.4 trillion won on revenue of 195 trillion won ^[6] is a margin of about 55 percent ^[22]. A 782.5 percent rise puts the year-earlier quarter near 12.2 trillion won ^[23], so the latest one is about 8.8 times as large ^[27]. The whole 15 trillion won repurchase comes to about 14 percent of a single quarter's operating profit at this rate ^[24]. Liao said what matters now is whether earnings hold, whether AI memory demand stays strong and whether valuations look attractive on normalized profits, not peak-cycle ones ^[10].

If foreign institutions come back on those earnings, the end of the buybacks costs the stocks little. Liao said they have room, having cut exposure earlier this year as their chip holdings grew and portfolio risk rose ^[11]. "Having room to buy is different from wanting to buy," she said ^[12]. If they hold off, the stocks lean on buyers who together absorbed about 4.3 trillion won in September ^[26]. The third path is a weaker memory cycle, which the Herald called the bigger test for both companies ^[19].

I think SK hynix has the stronger case, and the wording of its payout pledge is most of the reason. Under its new plan it will return more than half of its cumulative free cash flow over 2025-27; the earlier pledge was to return within half ^[8]. The old wording was a cap. The new one is a minimum. The counter-thesis is that a minimum written as a share of free cash flow falls when free cash flow falls, and Liao cautioned against assuming SK hynix can repeat a 40 trillion won buyback every cycle ^[13]. "It is relatively easy to return cash when memory earnings are exceptionally strong, but the real test is what management does after the cycle peaks," she said ^[14].

Liao said SK hynix still has to defend its lead in high-bandwidth memory and keep investment discipline ^[18]. Samsung, by her account, has to show returns on investments such as its foundry business and set out its next shareholder commitments ^[9]. Investors accept heavy capital spending at TSMC because of its record of returns and steadier business, she said, and capital allocation carries more weight at cyclical memory producers ^[16]. This view is wrong if Samsung's next commitment cancels shares at a size its quarterly profit can support. It is also wrong if SK hynix's free cash flow shrinks so far that half of it buys far less than 40 trillion won did ^[2].