What does the company do?
Samsung Electronics is the world's largest maker of memory chips. It has come a long way since its inception in 1969, producing transistor radios and black and white television sets. Its mainstays are market leading semiconductor chips, OLED screen panels and mobile phones. It enjoys a wide moat for its businesses, as its technological prowess, scale and continuous investment in leading edge technology all pose formidable barriers to entry for rivals. The company is also a global market leader in memory chip technology, and in the most advanced and thin smartphone display screens that can save precious real estate for additional handset features. This provides an excellent supply chain network for Samsung's own smartphones and makes it a tier-one supplier to its largest handset competitors.
Samsung has used its competitive advantages to build a large war chest of cash reserves over the years, enabling it to acquire businesses, innovate for the future, and support an attractive shareholder returns policy. At the time of writing, the company's cash balances amount to close to a fifth of its market capitalisation. For over a decade, the Investment Manager has been engaging with the company on a range of ESG issues, including corporate governance, and has seen the company make steady progress in that time. The interactions with the company continue to improve. Recently, this has included a meeting with the company's chairman, which was a continuation of a longstanding dialogue on a range of ESG issues. The Investment Manager took comfort from comments on enhanced board oversight of related-party transactions and compliance. It was also encouraging to hear the chairman's view that his successor as chairman would most likely be a current independent director from the board. This was evidenced by the appointment of a former GIC managing director as an independent director. Such moves by the company followed an earlier reorganisation, which simplified its structure, streamlined the management hierarchy and placed greater focus on a centralised sustainability committee. The Investment Manager is pleased that its engagement has yielded results and will look to continue such constructive discussions with the company.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.