The aggregate annual operating profit of 229 companies listed on the KOSPI and KOSDAQ markets this year is estimated at 134.51 trillion won (US$113.76 billion), down 24.6 percent from last year, according to Seoul-based market tracker FnGuide on July 17. The net profit is also forecast to drop 20.8 percent to 99.03 trillion won (US$83.74 billion). Sales are expected to edge up 1.7 percent from a year ago to reach 1,907.92 trillion won (US$1.61 trillion).
The market's biggest concern is an earnings shock of memory chip companies which have propped up the South Korean economy. The operating profits of Samsung Electronics Co. and SK Hynix Inc. are expected to be halved this year. Samsung Electronics’ annual operating profit is forecast to drop by a whopping 54.6 percent to 26.75 trillion won (US$22.62 billion). It is the lowest figure since 2015. SK Hynix’s operating profit is estimated to drop as much as 83.2 percent to 3.05 trillion won (US$2.96 billion). In short, its operating profit practically decreases to one sixth in a year.
This is largely due to the decline in semiconductor exports due to the trade war between the United States and China and the drop in China's economic growth rate. In addition, the price of memory chips for regular clients is on the decrease as the market has been slowing down from the end of last year.
The problem is that Japan’s export curbs can lower the performance outlook further in the future. Samsung Electronics and SK Hynix saw their operating profit consensus decrease 4.8 percent and 21.2 percent, respectively, compared to a month earlier when there was no issue about Japan’s export regulations. As Japan’s economic retaliation is becoming a reality, securities companies have scrambled to lower their performance forecasts. The overall operating profit consensus of listed companies has also fallen 3.7 percent compared a month ago.
With escalating tension between South Korea and Japan, experts point out that semiconductor companies will be hit harder when Japan’s export curbs are prolonged. Lee Seung-woo, an analyst with the Eugene Investment Co., said, “It is a critical issue that it can cause serious problems not only in the South Korean semiconductor industry but also in the global information technology (IT) supply chain if Japan extends or expands restrictions on exporting core materials used in semiconductor.”
Other major companies also show a gloomy outlook for this year’s earnings. DaewooShipbuilding&Marine Engineering Co. is forecast to see its operating profit decrease 64.4 percent compared to last year, Lotte Chemical Corp. 31.9 percent, E-Mart Inc. 23.4 percent, LG Chem Ltd. 23.3 percent and SK Innovation Co. 20.4 percent.
As a result, there is growing pessimism about the South Korean economy. Some say that South Korea will record some 1 percent of grossdomesticproduct (GDP) growth this year. They believe the South Korean economy will falter if Japan’s curbs on semiconductormaterial exports to South Korea are extended and the country’s export curbs expands to other industries.