Samsung Electronics common stock trades at approximately 54% premium over its preferred shares, marking a historical high, according to DS Securities analyst Kim Su-hyun in a report. The analyst attributes the widening gap to large-scale ETF fund inflows concentrated exclusively in common shares over recent months. Kim assessed the current premium as difficult to justify, noting that corporate law amendments expanding directors' fiduciary duties to all shareholders and active shareholder return policies have weakened traditional preferred stock discount factors. The analyst projects the price gap will likely narrow in the second half as expectations rise for large-scale dividends and treasury stock cancellations at Samsung Electronics.
ETF Inflows Push Samsung Common Stock Premium to 54%
Kim Su-hyun stated in the report that Samsung Electronics common stock currently trades at approximately 54% premium compared to preferred shares, with the primary driver being substantial ETF fund inflows into common shares only over recent months. Preferred shares carry priority dividend rights and residual asset distribution priority but lack voting rights. The analyst noted that preferred shares typically trade at a discount to common shares due to absence of voting rights and relatively lower trading volume.
Corporate Law Amendments Weaken Preferred Stock Discount Factors
Kim explained that preferred stock pricing follows the formula: common stock price + priority dividend rights - voting rights premium - liquidity discount. The analyst diagnosed that voting rights premium value has declined significantly compared to the past. Kim stated that voting rights premium historically functioned as insurance against controlling shareholders potentially harming general shareholder interests, but corporate law amendments expanding directors' fiduciary duties to all shareholders have substantially replaced that insurance value.
The liquidity discount factor has also diminished according to the analysis. Kim noted that Samsung Electronics preferred shares' daily average trading volume over the past year corresponds to the 5th-6th highest market capitalization level domestically, making it difficult to apply a large discount rate based on liquidity shortage.
International Preferred Stock Discounts Range 1-5%
Kim assessed domestic preferred stock discount rates as excessive when compared to international cases. US companies Alphabet and Berkshire Hathaway, along with major German firms, maintain preferred stock discounts of only 1-5% versus common shares. The analyst attributed this to active management of price gaps through preferred share buybacks and protections for non-voting shareholders.
Mirae Asset Securities Allocates 100 Billion Won for Preferred Share Buyback
Domestic movements toward reducing preferred stock discounts have emerged. Kim cited Mirae Asset Securities' announcement in June of a 300 billion won treasury stock purchase and cancellation plan, with 100 billion won designated for preferred shares. The company stated its purpose as "mitigating market price gap between common and preferred shares and achieving balanced shareholder returns."
Kim characterized this as a meaningful shift, marking the first instance of a domestic company explicitly setting gap reduction between common and preferred shares as a shareholder return objective.
DS Securities Forecasts Second-Half Gap Narrowing
Kim projected that funds betting on preferred stock discount reduction will likely increase in the second half as expectations heighten for large-scale dividends and treasury stock cancellations at Samsung Electronics.
FAQ
What caused Samsung Electronics common stock premium to reach 54%?
DS Securities analyst Kim Su-hyun attributed the 54% premium to large-scale ETF fund inflows concentrated exclusively in common shares over recent months.
How do international preferred stock discounts compare to Samsung Electronics?
US companies Alphabet and Berkshire Hathaway, along with major German firms, maintain preferred stock discounts of only 1-5% versus common shares, significantly lower than Samsung Electronics' current 54% gap.
What shareholder return action did Mirae Asset Securities announce in June?
Mirae Asset Securities announced a 300 billion won treasury stock purchase and cancellation plan in June, allocating 100 billion won specifically for preferred shares with the stated purpose of mitigating the market price gap between common and preferred shares.
