Due to Poor Performance of IT Firms
The earnings weakness of the Korean information technology (IT) industry, which forms the backbone of the nation’s bourse, has darkened the earnings outlook for the entire KOSPI-listed companies in the second quarter.
According to data provider FnGuide on June 26, the aggregate operating profits of KOSPI firms for the second quarter are estimated at 51 trillion won (US$45.62 billion), down 2 trillion won (US$1.79 billion) from the 53 trillion won (US$47.41 billion) forecast at the beginning of the year.
The Q2 operating profit forecasts for IT companies listed on the KOSPI and secondary KOSDAQ markets have been reduced 5.8 percent from 23.39 trillion won (US$20.92 billion) at the beginning of the year to 22.04 trillion won (US$19.72 billion) as of June. This is largely due to the fact that market behemoth Samsung Electronics saw its operating profit estimate for the second quarter drop as much as 6.9 percent from 16.52 trillion won (US$14.78 billion) to 15.38 trillion won (US$13.76 billion) over the same period. However, other IT companies also show a downward trend in performance.
First of all, LG Electronics, another electronics giant in the nation, is forecast to post a lower operating profit than expectations. Securities companies said that LG Electronics’ operating profit for the second quarter is currently estimated at 856.2 billion won (US$765.83 million). The figure represents a 29 percent increase from its earnings a year ago but falls short of the 900 billion won (US$805.01 million) estimated at the end of last month. This is why KB Securities Co. lowered LG Electronics’ target stock price from 135,000 won (US$120.75) to 110,000 won (US$98.39). Kim Dong-won, an analyst from KB Securities, said, “The company’s operating profit will fall short of the market forecasts due to the decrease in operating profit of the TV division and the increase in deficit in the smartphone division.”
In addition, there are growing concerns over performance of large-cap IT stocks, such as LG Display Co. and LG Innotek Co. The Q2 operating profit of LG Innotek was estimated at some 50 billion won (US$44.72 million) at the beginning of the year. However, the company has been expected to show an operating loss from March after it announced its Q1 results. LG Display is also forecast to post 153 billion won (US$136.85 million) in operating loss in the second quarter. The company’s target stock price has been lowered from 37,000 won (US$33.09) to 29,000 won (US$25.94). According to industry sources, prices of LCD panels are on the decline, and the outlook for the industry is dim as Chinese companies have started operating their new production facilities.
Poor performance of large-cap IT companies is bound to negatively affect equipment and component firms that do business with them. Silicon Works Co., which produces semiconductor parts for displays, saw its Q2 operating profit forecasts shrink from 17.2 billion won (US$15.38 million) earlier this year to 7.8 billion won (US$6.98 million) as of June. The stock price of BH Corporation, a component manufacturer which is in partnership with Samsung and LG, dropped more than 6 percent this month. Other software and Internet companies, including Naver Corporation, Kakao Corporation and NCSoft Corporation, also suffered a downward adjustment in their performance projections.
This is highly likely to fuel concerns over performance of the stock market as a whole. Electric and electronics companies account for 15 percent of the KOSPI market, while IT firms take up 26 percent of the KOSDAQ market. The FnGuide’s Q2 operating profit forecasts for the KOSPI-listed companies decreased from 53 trillion won (US$47.4 billion) at the beginning of the year to 51.14 trillion won (US$45.74 billion) as of June. In short, there are no favorable factors that can pull up the stock market offsetting exchange rate fluctuations and trade disputes.
Meanwhile, Samsung Electro-Mechanics Co. also saw its performance forecasts adjusted downward several times this year. However, the company is forecast to post 175.3 billion won (US$156.8 million) in operating profit in the second quarter, a 148 percent increase on-year. Semiconductor equipment producers, sicu as Hanmi Semiconductor Co. and Wonik IPS Co., are expected to benefit from global expansion of investment in the semiconductor industry.