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Investors eye Samsung's cash pile at rare strategy briefing

A journalist walks at the Samsung booth during a media preview day at the IFA consumer electronics fair in Berlin, September 5, 2013. REUTER
A journalist walks at the Samsung booth during a media preview day at the IFA consumer electronics fair in Berlin, September 5, 2013. REUTER

By Miyoung Kim

SEOUL (Reuters) - Investors are likely to press Samsung Electronics Co on dividends and plans to sustain growth as the world's biggest smartphone maker holds its first analysts' briefing in eight years on Wednesday.

Record-high profits have left Samsung sitting on a $50 billion cash pile, equivalent to more than a fifth of its market capitalization, but its shares trade at a deep discount to peers largely because of its investor-unfriendly returns.

Samsung's lack of transparency through the years has left shareholders with few expectations that the South Korean company will shed light on its plans. But some analysts and investors say they hope Wednesday's public relations event will prove them wrong.

"There are a few hopes that they will talk about shareholder returns, but expectations are not high here," said Mark Newman, an analyst at sell-side research firm Sanford Bernstein.

"If they make any commitment to increase dividends or re-initiate share buybacks, it would be taken very positively by the market. This would have the greatest impact, but hopes are low."

Samsung trades at seven times projected earnings, while its rival, Apple Inc, trades at a premium of 12. Samsung shares have fallen 2 percent over the past six months, while Apple has gained 17 percent during the same period.

Samsung's profits have risen to record highs in six of the past seven quarters, but its shareholder returns have steadily fallen to the lowest level in at least five years. It gave shareholders just 5.1 percent of its profit last year in dividends compared to a 15.8 percent payout in 2007 when it last bought back shares in the market.

Foreigners own half of the shares of the company, but its shareholder return policy and the fact that it doesn't have shares listed in foreign markets, have contributed to the stock trading at a deep discount.

Samsung says it will continue to consider various factors such as business risks and financial position when reviewing its return policy for shareholders.

Expectations are low for any announcement, however, at the meeting, which will be attended by 350 investors and analysts. Many others will listen in through a live webcast.

"This event is more likely a show of engagement from their part with investors, a reminder of the competitive position of their core businesses and their prospects," said J.R. Baik, fund manager at Korea Investment Management, which owns Samsung shares.

SHAREHOLDER PRESSURE

Samsung's briefing comes at a time when its main competitor is also facing shareholder pressure. Activist shareholder and billionaire investor Carl Icahn is pushing Apple to return more of its $146.8 billion cash hoard, even after the iPhone maker earlier this year agreed to spend $100 billion through 2015 on share buybacks and dividends.

Samsung's one-day event, held at its subsidiary, the Shilla hotel, will be hosted by seven top executives, including the three co-chief executives and the chief financial officer.

Each executive from Samsung's key business units, including mobile chief J.K. Shin, will have around 50 minutes to present corporate objectives and strategic priorities, Samsung said.

Wild forecasts about Samsung's handset sales in early June led to massive downgrades that wiped out nearly $20 billion worth of its market value in a week, and tapering growth in the mobile business is set to slow its overall earnings next year. Samsung earns two-thirds of its profit from mobile business.

"The company will focus on showing off their growth prospects and diversity of their businesses as investors have become too focused on handset margins without considering all the other strong businesses," said Sanford Bernstein's Newman.

Samsung shares are a proxy for the global technology industry as its core businesses cover almost everything from semiconductors to home appliances, televisions, computers and mobile devices.

($1 = 1,060.75 Korean won)

(Editing by Miral Fahmy)

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