Time For a Samsung US Market Listing?

October 1, 2013, 9:29 AM

Time For a Samsung US Market Listing?

JONATHAN CHENG

For a few hundred dollars, a U.S. consumer can visit a local telecoms dealer and pick up a device manufactured bySamsung Electronics Co.005930.SE +0.88% But buying shares of the Korea-listed technology giant? Not so easy. That’s because Samsung, virtually alone among Asian tech giants with a global brand presence, doesn’t make its shares tradeable through American depositary receipts — instruments that allow stock in a non-U.S. company to trade, in greenbacks, on a U.S. exchange.That has left many U.S.-based investors, fund managers and analysts without an easy way to turn their market views on the relative business prospects of, say, AppleInc.AAPL -1.24% and Samsung into a direct dollars-and-cents investment.

A quick GoogleGOOG -0.05% search for “how do I invest in Samsung?” offers a patchwork of half-baked solutions and workarounds that leaves much to be desired.

One obvious solution is to invest in either a broad Korean stock market tracker or in a regional technology index that is denominated in U.S. dollars. Either way, expect exposure to a lot that is not Samsung.

For those brave enough to trade shares of Samsung in thinly-traded U.S. over-the-counter markets, meantime, there’s a different risk altogether: transparency is limited, and liquidity can be so scarce that fewer than 100 transactions take place on any given day. Add the usual foreign-exchange uncertainties, and it’s no wonder you don’t find too many ordinary U.S. investors holding Samsung shares.

Which brings us to Samsung’s corporate management, and its attempts to energize the company’s stock price. Samsung’s Korea-listed shares have fallen by about 10% this year even as the company has pushed its quarterly profits to new record highs and extended its market share lead over Apple — a situation that has vexed company executives.

Could the answer be to simply open up investment to foreign investors?

The answer is a plain yes, argues Mark Newman, a Hong Kong-based technology analyst with Bernstein Research.

In a note to clients Monday, Mr. Newman argues that stock return is “highly correlated to buying by foreigners,” and that Samsung’s inaccessibility to a pool of eager investors like those in the U.S. “significantly limits Samsung’s volume, which we believe holds back the stock.”

While a company like Apple sees 1.4% of its market capitalization change hands on an average day, Samsung’s stock only sees 0.2% of its market cap get traded, due to the difficulty most investors find in getting their hands on Samsung shares.

Rival Taiwan Semiconductor Manufacturing Co. also only has 0.2% of its market cap traded each day on its home exchange, the Taiwan Stock Exchange. But TSMC makes up for the relative inactivity of its shares through trading of its ADRs on the New York Stock Exchange.

The volume from U.S. investors singlehandedly doubled overall trading of TSMC’s shares, Mr. Newman notes. (TSMC’s stock has tacked on modest gains for the year.)

Mr. Newman’s prescription for Samsung, as you might imagine, is rather straightforward: “Samsung desperately needs either an ADR or a U.S. market listing.”

It should be noted that Mr. Newman is bullish on Samsung, projecting that the stock will increase to 2,400,000 Korean won a share — a roughly 75% gain from its current share price.

In his note, Mr. Newman also argues for increased cash returns in the form of dividends and buybacks, and says that taking such shareholder-friendly actions will help propel the share price higher.

Samsung, which will issue quarterly earnings guidance to investors on Friday, declined to comment on Mr. Newman’s note, but pointed to a recent earnings call in which Robert Yi, senior vice president of investor relations at Samsung, said that “various factors” would be taken into consideration when reviewing shareholders’ return policy.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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