South Korea’s leading companies suffered an earnings shock in the first half of this year. The competitiveness of the country's major industries has been undermined due to anti-business and anti-market economic policies and a lower labor productivity amid deepening uncertainty from the trade war between the United States and China and Japan’s economic retaliatory measures. Accordingly, there is growing concern that the slump of the South Korean economy will be prolonged.
The combined operating profit of 125 listed firms, including 90 on the KOSPI and 35 on the KOSDAQ, came to 44.09 trillion won (US$37.25 billion) in the first half of this year, down a whopping 36.9 percent from 69.96 trillion won (US$59.12 billion) from a year earlier, according to the Financial Supervisory Service (FSS). Combined sales of these companies edged up 0.22 percent over the cited period from 514.80 trillion won (US$435.02 billion) to 515.92 trillion won (US$435.97 billion). The operating profit-to-sales ratio was a mere 8.5 percent. It means that the companies earned only 85 won (US$0.07) on every 1,000 won (US$0.85) worth of sales.
The earnings of the country’s industries as a whole, including display, energy, chemical and steel as well as semiconductor, shrunk. In fact, 23 out of 50 non-banking companies included in the KOSPI 200 saw their operating profits decrease in the first half compared to a year ago.
Notably, the operating profit of SK Hynix Inc. stood at 2 trillion won (US$1.69 billion) in the first half, down as much as 79.8 percent from the same period last year. The estimated operating profit of Samsung Electronics Co. also dropped 58.3 percent to 12.73 trillion won (US$10.76 billion). LG Electronics Inc. also saw its operating profit fall 17.4 percent to 1.55 trillion won (US$1.31 billion). LG Display Co. posted 500.80 billion won (US$423.29 million) in operating loss, showing a bigger loss than 326.40 billion won (US$275.89 million) a year earlier. South Korea’s other leading companies showed a sharp decline in operating profits, including SK Innovation Co. with -46.9 percent, S-Oil Corp. with -72.6 percent, LG Chem Ltd. with -59.9 percent and POSCO Group with -17.1 percent.
The problem is that the earnings consensus for South Korea’s leading companies is getting lower due to growing concerns over the prolonged economic retaliation by Japan.
The annual operating profit consensus for 295 firms listed on the KOSPI and KOSDAQ markets this year came to 141.66 trillion won (US$119.68 billion) as of July 27, according to market tracker FnGuide. The figure decreased 3.66 trillion won (US$3.09 billion), or 2.52 percent, from the previous consensus of 145.32 trillion won (US$122.79 billion) as of June 28 right before Japan's announcement of export restrictions on semiconductor materials against South Korea. It showed a whopping 22.32 percent, or 40.70 trillion won (US$34.39 billion), compared to last year’s operating profit.
It is reported that Japan will proceed with the revision of the decree on the export trade management to exclude South Korea from the trade whitelist at the Cabinet meeting on Aug. 2. In this case, the export curbs, which are now confined to three semiconductor materials, will expand to a much larger scope, posting threat the South Korean economy.