Due to the spread of the COVID-19 virus, Korean companies’ earnings shock has become a reality.
The first-quarter operating profit forecasts of 88 KOSPI-listed companies that have earnings estimates from at least three securities firms totaled 16.45 billion won, said Fn Guide, a financial information company, on March 30. This is a 21 percent decrease from 20.88 trillion won forecast three months ago and a slide of 10.8 percent from 18.50 trillion won forecast one month ago. Compared to the first quarter of 2019, their operating profit is expected to fall 11.9 percent.
By industry, the semiconductor industry is expected to record the largest decline (-66.5 percent), followed by the media industry (-46.3 percent), the chemical industry (-43.9 percent), the metal and mineral industry (-42.8 percent), and the hotels and leisure industry (-34.2 percent).
Overall operating profit is expected to decrease as operating profit of top-ranking stocks will be significantly reduced. Samsung Electronics' operating profit consensus is expected to increase 2.4 percent on year to 6.38 trillion won. However, estimates by individual securities firms are below this. In fact, Hana Financial Investment presented 5.68 trillion won, KB Securities 5.80 trillion won, and DB Financial Investment 5.84 trillion won.
SK Hynix's first quarter operating profit is projected to shrink by 66.5 percent on year to 457.5 billion won. Battery makers Samsung SDI and LG Chem are also expected to see significant drops in operating profit. Samsung SDI's operating profit is expected to arrive at 58.1 billion won, down 51.1 percent from a year before and that of LG Chem is expected to sink 41.4 percent on year to 161.3 billion won. This is due to the fact that an LG Chem factory in Michigan, USA, has been put on a lockdown. As travel demand has plunged due to the COVID-19 crisis, Hotel Shilla's operating profit is projected to drop 43.9 percent to 45.9 billion won.
A bigger problem is that receiving a grim report card will not end in the first quarter. "The numbers of new confirmed COVID-19 cases in the US and Europe are on the rise, and Korea’s economic structure is highly dependent on exports,” Lee Kyung-soo, head of the Research Center at Meritz Securities. Some experts say that Korean companies’ business performances will further deteriorate in the second quarter.