Profit Oligarchy
Last year, major listed companies’ profits somewhat shrank amid the economic recession. Their sales and operating profits increased a little, but net profitability against sales dropped, while the ratio of certain companies’ profits ballooned.
The lopsidedness of a few top companies is being exacerbated, shown by the fact that the top 10 listed companies’ net profits took up 90 percent of all listed companies’ profits.
Korea Exchange and Korea Listed Companies Association revealed on April 1, after analyzing the 2013’s performance of 494 listed companies, their sales (about 1.813 quadrillion won, US$1.7 trillion) climbed 1.84 percent year-on-year, while their operating profits (about 101 trillion won, US$95.4 billion) went up 4.85 percent.
However, in the same period, their net profits (about 62 trillion won, or US$58.6 billion) fell 4.37 percent, and so did dominant firm equity ownership net profits by 2.10 percent.
The net profit rate against sales, which reflects profitability, also dropped 0.22 percentage points from 3.63 percent to 3.41 percent, meaning the net profits out of the sales of 1,000 won dropped from 36.3 won to 34.1 won.
Profits by individual company and industry were not dissimilar.
By industry, a sales increase over 6 percent was posted by medical precision, electric electronics, electric gas, and pharmaceuticals, while sales fell in steel and metal, mechanic, and transportation and storage.
In particular, on the back of Samsung Electronics’ success, the electronics industry was doing well, and the industry’s year-on-year operating profits jumped 34.6 percent. Also showing high growth were fabric and textiles (68.0 percent) and pharmaceuticals (37.7 percent). Contrarily, the downward trend was shared by chemicals (-18.7 percent), transportation apparatus (-16.3 percent), and steel and metal (-15.8 percent).
Hwang Ho-jin, Korea Exchange notification team leader, explained, “The performance of chemicals and steel deteriorated while the domestic demand-oriented electric/gas industry turned to a surplus. The export-dependent materials and components industry was hard hit by a global recession and reduced investment in facilities.”
Despite worsening profitability, it was indicated that lopsidedness on top-listed companies such as Samsung Electronics was getting more extreme in terms of operating profits and net profits. The top 10 listed companies’ net profits (about 55.8 trillion won, US$52.7 billion) occupied 90.32 percent of the total net profits (61.7 trillion won, US$58.3 billion) of 494 companies, implying that polarization among domestic companies is deepening.
These top 10 listed companies’ net profit ratios went up 12.48 percent year-on-year, while their net profits amounted to 77.84 percent of the total net profits posted by all listed companies last year.
Among last year’s top 10 companies in net profits were Samsung Electronics, Hyundai Motors, Kia Motors, Hyundai Mobis, SK Hynix, SK Telecom, POSCO, LG Chem, SK, and LG. The year before, the list included Samsung Electronics, Hyundai Motors, Kia Motors, Hyundai Mobis, SK, POSCO, LG Chem, Samsung SDI, SK Innovation, and Lotte Shopping.
Samsung Electronics, Hyundai Motors, Kia Motors, and Hyundai Mobis cemented their top rankings in net profits, and so did POSCO, LG Chem, and SK by remaining in the top ten. Therefore, polarization intensified due to the predominant leading forces of Samsung, Hyundai, Posco and LG.
However, the problem is that out of top 10 listed companies, only three registered an increase in net profits year-on-year: Samsung Electronics, SK Hynix, and SK Telecom.
Samsung Electronics’ net profits swelled 27.8 percent year-on-year with 30.5 trillion won (US$28.8 billion). SK Hynix succeeded in turning around to see a surplus. SK Telecom enjoyed a whopping year-on-year net profit increase of 44.27 percent with 1.6 trillion won (US$1.5 billion) in net profits. Only two companies beat Samsung Electronics in net profit increase; SK Telecom (44.3 percent) and LG Display (77.3 percent).
Particularly, Samsung Electronics’ net profits last year amounted to almost half of the whole profits posted in the stock market. Samsung’s tech giant recorded a record high profit of 30.5 trillion won (US$28.8 billion) during the term last year, up 27.8 percent year-on-year. Considering all the listed companies’ net profits were 61.7 trillion won (US$58.3 billion), Samsung Electronics alone is accountable for 49.4 percent of the total.
One industry associate said, “Lopsidedness is becoming chronic. An exorbitant portion is generated from global companies like Samsung Electronics or Hyundai Motors. This worries me, in that dependence on certain major companies will become more severe, and this might weaken not only the real market economy but also the financial market.”