Samsung Elec CFO says cash reserve not excessive

SEOUL - Samsung Electronics Co Ltd sought to reassure investors on Wednesday by promising to review its shareholder return policy every three years and continue heavy investment, as its share price sags despite record earnings.

Record profits have left the South Korean firm sitting on a US$50 billion (S$62.2 billion) cash pile, equivalent to more than a fifth of its market capitalisation. Even so, its shares are down 2 per cent so far this year at a deep discount to peers like Apple Inc , largely because of its investor-unfriendly returns.

"Our management view is that our product valuation multiple does not truly reflect our earnings growth and leadership position in the IT industry," Chief Financial Officer Lee Sang-hoon said at a day-long seminar for analysts in Seoul.

Lee said Samsung would modify its dividend strategy based on a target yield, and manage its shareholder return policy on a three-year basis to reflect changes in business conditions.

Rather than specify a target dividend yield, he said the 2013 dividend payout would be around 1 per cent of the share price. In 2012, Samsung's dividend payout amounted to 0.5 per cent of its share price, leading to complaints from some investors that the company was hoarding cash at their expense.

Lee defended Samsung's growing cash position at the public meeting, the second such gathering of analysts the normally taciturn company has held in eight years.

"I know we have been somewhat conservative in M&A but it may be different in the future. Based on this, I don't believe the current level of net cash balance is excessive," he said.

He said the company's cash pile, at US$50 billion as of the end of September, would be kept in reserve to prepare for potential "significant investment" in strategic technologies, mergers or acquisitions.

"We plan to allocate a significant portion of our annual cash flow into capex and R&D to secure future growth and shareholder return," he said.

Shares in Samsung, the world's leading maker of smartphones, traded down 0.1 per cent on Wednesday versus a 0.3 per cent rise in the wider market.

The stock trades at seven times projected earnings, while Apple trades at a premium of 12.

Samsung's profits have risen to record highs in six of the past seven quarters, even as shareholder returns have fallen to the lowest level in at least five years.

The US$228 billion company gave shareholders just 5.1 per cent of its profit last year as dividends, compared with a 15.8 per cent total payout in 2007 when it last bought back shares in the market.