SK Hynix Retail Investors Cheer as CEO Kwak Pledges 20,000 Won-a-Share Payout in First Earnings Call Appearance

‘Kwak No-jung showed a different side’ as SK Hynix retail investors give a thumbs-up

CEO makes first direct appearance on an earnings conference call since taking office

Explains Solidigm IPO review halt and shareholder returns

Shareholders praise clearer rationale behind management decisions

SK Hynix Chief Executive Officer Kwak No-jung made his first appearance on the company’s earnings conference call, drawing praise from investors. Unlike the previous quarter, when the company disappointed shareholders by repeating generic answers, Kwak directly explained everything from the decision to halt a planned initial public offering of Solidigm to returning gains from its Kioxia investment and plans for share buybacks and cancellations. Investors said the call marked a shift in the company’s investor-relations approach because top management clearly laid out the reasoning behind key decisions and its capital-allocation principles.

SK Hynix said on Oct. 28 that it posted third-quarter revenue of 104.6155 trillion won, operating profit of 83.3338 trillion won and net profit of 39.7756 trillion won. Its operating margin reached 80%, while net margin was 38%. Revenue topped 100 trillion won for the first time, and revenue and operating profit rose 32% and 38% from the previous quarter, respectively. The results were viewed as an earnings surprise as booming demand for memory chips, fueled by expanding global investment in artificial intelligence, drove performance. The average analyst estimate for operating profit had been about 77 trillion won.

By product, DRAM growth was driven by a full-scale ramp-up in shipments of sixth-generation high-bandwidth memory, or HBM4, and a sharp increase in server DDR5 sales. In NAND flash, sales of 321-layer enterprise solid-state drives also expanded, extending growth in high-value data-center products. The balance sheet also strengthened. Cash and cash equivalents stood at 114.5 trillion won at the end of the third quarter, up 26.5 trillion won from the end of the previous quarter. Borrowings fell by 2.8 trillion won to 15.8 trillion won. Net cash rose to 98.7 trillion won.

Still, more than the earnings themselves, what caught shareholders’ attention was Kwak’s detailed explanation of company policy. “I want to address directly the company’s decision on a Solidigm listing, which has recently drawn strong market interest,” Kwak said on the call. “After comprehensively considering volatility in financial markets and the correction in semiconductor stocks, Solidigm has decided to suspend its IPO review.”

He said the company had expected outside capital raised through a Solidigm IPO to ease SK Hynix’s investment burden and expand room for shareholder returns. Investment in Solidigm and related financing, he added, will proceed in a way that supports the corporate value and shareholder value of both Solidigm and SK Hynix.

SK Hynix disclosed on Oct. 23 that it had halted its review of both a pre-IPO financing round and an IPO for Solidigm. Concerns had spread that such a listing could undermine parent-company shareholder value because of an overlapping-listing structure. At the time, SK Hynix said it needed to reassess whether a Solidigm IPO would benefit existing shareholders, given capital-market conditions and the stock’s performance.

Kwak also laid out plans to return gains from the company’s Kioxia investment through a special dividend. “We will return this year’s realized gains from the Kioxia investment to shareholders through a special dividend,” he said. “Our principle has long been to share most of the proceeds with shareholders when strategic investments bear fruit.”

SK Hynix generated those gains in June, when Bain Capital sold its stake in Kioxia and the company recovered the full amount of its fund contribution. In 2018, SK Hynix joined a Bain-led consortium and invested a total of 395 billion yen in Kioxia, then known as Toshiba Memory, through a combination of fund contributions and purchases of convertible bonds. Industry estimates put the profit from the fund investment at about 2 trillion won.

The company said it will first pay about 7 trillion won of the Kioxia investment gains as a special dividend in the third quarter. That amounts to 10,000 won a share. The remainder will be included in the year-end dividend after this year’s investment gains are finalized. The total amount to be returned through the special dividend has not yet been fixed. Adding another 10,000 won a share tied to improved operating performance, the third-quarter dividend was set at 20,000 won a share, or about 14 trillion won in total.

Including the third-quarter dividend, SK Hynix plans shareholder returns of about 100 trillion won for the current fiscal year. The plan includes more than 30 trillion won in cash dividends and more than 60 trillion won in share buybacks and cancellations. First- and second-quarter dividends totaled about 265.8 billion won and 273.3 billion won, respectively, for a combined 539.1 billion won. Based on the company’s annual cash-dividend target, that suggests an additional fourth-quarter dividend of more than 15 trillion won after excluding first-half dividends and the roughly 14 trillion won paid this time.

The more than 60 trillion won in buybacks and cancellations includes the 40 trillion won announced in August. That buyback was completed last week, and the company plans to cancel the shares soon. The board on Oct. 28 also approved an additional 20 trillion won share repurchase. Of that, 10 trillion won will be fully canceled as a shareholder-return measure, while the remaining roughly 10 trillion won will be used for employee compensation. Shares acquired for employee compensation will be excluded from the annual shareholder-return tally. Given the annual target, the company could announce at least another 10 trillion won in share buybacks and cancellations in the fourth quarter.

The company is also nearing the financial-soundness target presented at its March shareholder meeting. At the time, Kwak said SK Hynix aimed to secure 100 trillion won in net cash to support the investments needed for future growth. As of the end of the third quarter, the company held 114.5 trillion won in cash and cash equivalents and had 15.8 trillion won in borrowings. That left net cash at 98.7 trillion won, up 29.3 trillion won from the previous quarter.

In his closing remarks on the call, Kwak said the gains shared with shareholders should grow as the business expands and investment profits accumulate. He said the shareholder-return plan announced on Oct. 28 reflects that principle. He added that the company will continue to build confidence in future growth through steady earnings and share the resulting gains with shareholders.

One shareholder who said he listened closely to the call praised the company’s shift in tone. During the previous quarter’s earnings announcement, the investor said, management had repeated phrases such as “under review,” “being planned” and “nothing has been decided,” without presenting conclusions or a concrete timetable on key issues. That had been disappointing for a company seen as operating at the top tier of the global semiconductor industry. This time, the shareholder said, top management directly explained everything from the reasons for halting the Solidigm listing to the special dividend and plans for buybacks and cancellations.

Another shareholder said the call mattered because it went beyond simply delivering numbers and laid out the company’s capital-allocation principles and direction for shareholder returns. The investor said it was particularly reassuring to hear the CEO personally explain the decision to suspend the Solidigm IPO review and the plan to return gains from the Kioxia investment, because it clarified the basis for management’s judgment and offered a sense of direction.

The shareholder added that it was also positive that Kwak explained key issues in a detailed and consistent tone. From a shareholder’s perspective, the investor said, it matters as much as strong earnings whether management has an accurate grasp of the business and financial situation and can present clear future plans. Those points came through more clearly than before. The stock responded as well. According to EpicAI, an AI-based investment information platform, SK Hynix closed regular trading up 10.89% at 1,487,000 won on Oct. 28.

Kang Kyung-ju, Hankyung.com reporter memory@hankyung.com