Korea’s listed companies are expected to show worse results in the second quarter earnings season, which begins with Samsung Electronics’ tentative result announcement. Although expectations have been lowered amid global economic slowdown, major companies in such key industries as semiconductor, steel and chemicals, are likely to deliver earnings shocks as their operating profits have been halved.
The operating profit of the country’s listed companies is expected to total 31.43 trillion won (US$26.89 billion) in the second quarter this year, down 34.1 percent from 47.73 trillion won (US$40.83 billion) a year earlier, according to Seoul-based market tracking company FnGuide on July 4.
In particular, the two largest semiconductor companies seem to have remarkably lower operating profits. The operating profit of Samsung Electronics and SK Hynix is expected to stand at 6.08 trillion won (US$5.20 billion) and 791.10 billion won (US$676.73 million), respectively, in the second quarter, down 59.1 percent and 85.8 percent from the same period last year. With a favorable turn in the display sector, Samsung Electronics’ earnings outlook has recently been nudged up to some 6 trillion won (US$5.13 billion). On the other hand, SK Hynix will not be able to defend its Maginot line of 800 billion won (US$684.35 million). As the two firms account for a considerable portion of the domestic stock market, Samsung Electronics’ tentative results to be released on July 5 will determine the direction of the stock market for a while.
The petrochemical industry, which is the country’s another key sector, is also expected to see its operating profit be halved. The figure of Lotte Chemical will show a drop by 50.1 percent, SK Innovation 47.4 percent, Hanwha Chemical 43.6 percent and LG Chem 43.1 percent. These companies are hit hard by the prolonged trade dispute between the United States and China, which has greatly reduced exports of semiconductor and petrochemical products.
The Ministry of Trade, Industry and Energy said the amount of exports in June fell 13.5 percent to US$44.20 billion (37.81 million) compared to a year ago. In particular, semiconductor and petrochemical product exports dropped 25.5 percent and 24 percent, respectively. As Japan has recently announced to impose economic retaliation against South Korea, the outlook for the second half doesn't look very promising either.
In addition, the steel industry will not be able to avoid a poor performance. The operating profit of POSCO Group is expected to decrease 10.8 percent to 1.12 trillion won (US$955.86 million) compared to last year, while that of Hyundai Steel will see a 29.6 percent drop to 264.40 billion won (US$226.18 million).
The holding companies of major business groups also show lower earnings estimates. Hanwha is forecast to see its operating profit decrease 34.1 percent compared to the same period last year, LG 15.2 percent and Doosan 9.2 percent. Samsung C&T, the de facto holding company of Samsung Group, is also expected to post a 30 percent lower operating profit.
As a result, the buying trend of foreign investors, which has propped up the domestic stock market, is more likely to be swayed. As foreigners went on a selling spree in May due to a rise in exchange rate, the KOSPI nearly dropped 10 percent for a month. After the exchange rate was stabilized last month, foreign buying barely showed recovery. Lee Chang-hwan, an analyst of Hyundai Motor Securities, said, “There is a possibility that foreign investors will show a weaker buying trend in the short run with poor economic indicators and strong U.S. dollar.”
Clouds are also gathering over the prospect that earnings will hit the bottom and recover starting from the third quarter. Lee said, “The domestic industry as a whole continues to show a downward trend in earnings estimates. South Korean companies have a remarkable lack of momentum even compared to major countries. The Q3 earnings will turn around in the information technology (IT) and noncyclical sectors compared to the second quarter. The annual earningsthis year will decrease more than 20 percent from last year.”