[Beginner's Guide] SK Ino's Bold Decision Sends Stock Soaring... The Trend is 'Shareholder Returns'

Editor's Note[Joorini Guide] is a smart investment guide for ‘Joorini (stock + beginner)’. We will kindly and easily explain stock stories that are unfamiliar to Joorini.

The shareholder meeting season has come to an end.

There seems to be no disagreement that the star of this shareholder meeting season in our stock market is ‘SK Innovation’.

SK Innovation announced a ‘bold’ shareholder return plan at the shareholder meeting, causing the stock price to soar vertically.

Earlier, SK Square also showed a strong stock price after announcing its shareholder return policy at its shareholder meeting.

The magic of shareholder returns driving stock price increases.

Let’s explore what kinds of shareholder return plans exist through cases including SK Innovation.

SK Innovation’s ‘bold’ decision met with stock price response

On the 30th of last month, SK Innovation’s stock price rose 13.80% to close at 187,200 KRW.

During the day, it even rose as much as 18.48% to 194,900 KRW.

It is unusual for a large-cap stock like SK Innovation to surge more than 10% in a single day.

The reason behind SK Innovation’s sharp stock price rise was the announcement of a ‘unprecedented’ shareholder return plan at the shareholder meeting that day.

It mainly included ▲cash dividends ▲share buyback and exchange payment after SK On’s listing.

First, SK Innovation announced that it is considering a minimum cash dividend of 2,000 KRW per share as a dividend guideline for 2024?2025.

[Image source=Yonhap News]

Next, regarding the initial public offering (IPO) of SK Innovation’s subsidiary SK On, they announced that after SK On’s listing, SK Innovation will conduct a tender offer to buy back treasury shares equivalent to about 10% of market capitalization from SK Innovation shareholders, and then exchange those shares for SK On’s stock to the shareholders who participate.

In other words, SK Innovation plans to distribute SK On shares to its existing shareholders upon SK On’s listing.

This is seen as a clear message to shareholders worried that SK Innovation’s stock price might fall when its core business and future growth engine, the battery division (SK On), goes public.

It sends a message that they will not follow the footsteps of LG Chem-LG Energy Solution.

The securities industry is also positively evaluating SK Innovation’s bold decision.

Choi Go-woon, a researcher at Korea Investment & Securities, analyzed, “As can be seen from the 14% surge in the stock price that day, concerns about shareholder value dilution due to the subsidiary’s listing were the biggest discount factor for SK Innovation’s stock price. In fact, by opening the way for existing shareholders to acquire SK On shares and showing the intention to protect them from uncertainties expected during the IPO process, this is positive.”

Types of Shareholder Return Plans

When you think of shareholder returns, many people probably think of ‘dividends’.

It is the most common shareholder return plan.

Dividends mean paying a portion of the company’s earnings to shareholders according to their shareholdings.

If the company does not make a profit, the possibility of dividends is low.

In dividends, it is important not only how much the company earned but also to check the ‘payout ratio’.

The payout ratio indicates the percentage of net income paid out as dividends over one year.

For example, if a company’s annual net income is 10 billion KRW and the payout ratio is 20%, it means 2 billion KRW is paid as dividends.

Dividing this 2 billion KRW by the number of shares entitled to dividends gives the dividend per share.

[Image source=Yonhap News]

Along with dividends, a recently notable shareholder return plan is ‘share buybacks’.

You probably saw this often during this shareholder meeting season.

Not only SK Innovation but also SK Square, LG Electronics, DGB Financial Group, and others announced share buybacks one after another.

Share buybacks mean the company directly purchasing and holding its own issued shares.

It is often done to stabilize the stock price and enhance shareholder value.

As the law of supply and demand shows, if buying exceeds selling, the stock price naturally rises.

There is also a step beyond share buybacks called ‘share cancellation’.

Share cancellation is considered the ‘flower’ of shareholder return plans and is regarded as the most certain shareholder return plan.

Share cancellation literally means the company destroys its own shares.

Since the number of outstanding shares decreases, the value per share increases significantly.

Examples of Shareholder Returns

As seen in the SK Innovation case, shareholder return plans are immediately reflected in the stock price.

The same goes for SK Square. At this shareholder meeting, SK Square announced it will expand shareholder returns in earnest, including its first-ever 200 billion KRW share buyback and cancellation since its establishment.

Following this news, on the 31st of last month, SK Square’s stock price rose as much as 6.62%.

On the 28th of last month, DoubleU Games also announced at its regular shareholder meeting that it would cancel more than 50% of its treasury shares, causing its stock price to surge up to 9.26%.

Beyond this shareholder meeting season, one of the most talked-about shareholder return policies is that of Meritz Financial Group.

At the end of 2021, Meritz Financial Group announced large-scale share buybacks and cancellations in three phases, and its stock price soared more than 200%.

[Image source=Yonhap News]

Dear Joorini,

If you have the chance, I recommend attending the shareholder meetings of the companies whose stocks you own.

It is a valuable opportunity to hear directly about the company’s mid- to long-term plans.

The best thing from a shareholder’s perspective is for the value of the stocks you hold to increase.

To achieve this, the company must focus on its core business to earn more money,

but it is also important how much it returns to shareholders.

As shareholders actively voice their opinions, companies will also strive to manage shareholders better.

Wishing wise investments to all Joorini today, I will end this article here.

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This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and difficult economic stories in an easy and friendly way so that stock beginners can understand. By subscribing, you can receive articles for free.

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