Thursday, October 17, 2019
S. Korea’s Top 100 Companies Suffer Nearly 50% Decline in Operating Margin
A Sharp Drop in Corporate Profitability
S. Korea’s Top 100 Companies Suffer Nearly 50% Decline in Operating Margin
  • By Yoon Young-sil
  • August 2, 2019, 11:04
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The operating margin of Korea's top 100 manufacturing companies listed on the benchmark KOSPI market stood at 5.9 percent in the first half of this year.

South Korea’s major manufacturing companies saw a significant drop in profitability. The country’s top 100 firms made a mere 59 won (US$0.05) in operating profit on every 1,000 won (US$0.84) sold in the first half of this year. Their profitability was cut in half in a year.

The ratio of operating gain to sales of top 100 manufacturing companies listed on the benchmark KOSPI market stood at 5.9 percent in the first half of this year, according to data on consensus earnings estimates from market tracker FnGuide on Aug. 1. The figure fell by 4.5 percentage points from 10.4 percent a year ago.

The operating profit margin of the top 100 companies decreased to a single figure since the beginning of the year. Sixty four out of 100 firms saw their operating profit rates shrink back. The operating margin ratio, also known as the operating profit margin, is a profitability ratio that measures what percentage of total revenues is made up by operating income.

In particular, South Korea’s two largest semiconductor companies – Samsung Electronics Co. and SK Hynix Inc. – had a sharp drop in operating profit margin. Their operating profits halved as the downturn in the semiconductor market had been prolonged. SK Hynix recorded an operating profit rate of 52.1 percent in the first half of last year but the figure fell to 15.2 percent in the first half of this year. Its operating profit margin showed a whopping 36.9 percentage points in just one year. Samsung Electronics also saw its operating profit margin decrease 13.8 percentage points on year to 11.8 percent in the first half of the year.

In addition, the country’s other major manufacturing companies such as oil refining, chemical, cosmetics and food showed a decrease in the profitability, including POSCO Group with -1.6 percentage points, SK Innovation Co. with -2.9 percentage points, Samsung C&T Corp. with -1.7 percentage points, LG Chem Ltd. with -6 percentage points, CJ Cheiljedang Corp. with -0.9 percentage point and AmorePacific Corp. with -4.1 percentage points.

Major conglomerates which have popped up the South Korean economy are expected to continue to see their profitability get worse in the second half. This is because they cannot expect rebound in performance due to difficult business environments such as the trade dispute between the United States and China and Japan’s export curbs.

Accordingly, listed companies are lowering their operating profit goals this year. This year’s consensus earnings of 223 companies listed on the KOSPI and KOSDAQ markets was estimated at 192.05 trillion won (US$161.01 billion) earlier this year but the figure has been lowered by 30.6 percent to 133.21 trillion won (US$111.70 billion) now.