Operating Profit of Listed Companies in Q1 This Year Wiped Out by "Shin-jong Corona"... 2 Trillion Won Vanished

3 Months Ago, Earnings Improvement Expected
70% Lowered Forecasts Due to COVID-19
Likely to Decrease by About 100 Billion Won Compared to Last Year

[Asia Economy Reporter Oh Ju-yeon] Expectations for improved earnings of domestic companies in the first quarter of this year have plummeted due to the novel coronavirus infection (Wuhan pneumonia). Just three months ago, operating profits for the first quarter of this year were expected to increase by about 10% compared to the first quarter of last year, but now they are estimated to fall short of last year's level. This is because the impact of the novel coronavirus has made damage to domestic service industries, export shocks, business suspensions, and investment contractions inevitable.

According to FnGuide, a financial information company, as of the 7th, the consensus (forecast) for operating profits in the first quarter of this year for 82 listed domestic companies, estimated by three or more securities firms, was 17.2458 trillion won. This figure is 10.33% (1.9878 trillion won) lower than the 19.2336 trillion won expected three months ago, with operating profits of 58 companies (70.73%) out of the 82 listed companies declining compared to three months ago. This means that the earnings outlook for 7 out of 10 companies has been lowered.

This operating profit consensus is even lower than the operating profits of the first quarter of last year. Until the end of last year, the securities industry expected that operating profits of domestic listed companies in the first quarter of this year would increase compared to the previous year. According to data compiled at the end of November last year, the operating profits of 28 listed companies in the first quarter of this year were expected to increase by 13.89% to 11.3462 trillion won from 9.9625 trillion won in the first quarter of last year.

However, the rosy outlook changed to a bleak one in just over three months. The recently estimated operating profit of 17.2458 trillion won is about 100 billion won less than the 17.3846 trillion won in the first quarter of last year. Ultimately, the expectation that corporate earnings would improve compared to last year and that the economy would recover has significantly diminished due to the novel coronavirus situation.

In particular, industries such as refining, petrochemicals, steel, and metals, which are expected to suffer losses due to the suspension of operations at local factories in China, have been directly hit by the impact of the novel coronavirus. The company with the largest decline in earnings forecasts is S-Oil, whose first-quarter operating profit forecast plummeted 76.5% from 391.5 billion won three months ago to 91.9 billion won. SK Innovation's first-quarter operating profit forecast also dropped 74.5% from 503.8 billion won to 128.3 billion won during the same period.

Hyundai Steel and POSCO also saw their operating profit forecasts decrease by 58.0% and 16.9%, respectively, compared to three months ago, and electric vehicle battery-related stocks, which have gained attention this year, such as Samsung SDI and LG Chem, fell by 54.7% and 52.8%. Earnings expectations for Chinese consumer sectors such as cosmetics, hotels, and duty-free shops have also declined. Hotel Shilla's first-quarter operating profit dropped 26.6% from 81.8 billion won three months ago to 60.0 billion won, and Amorepacific's fell 13.2% from 214.2 billion won to 172.9 billion won.

There is also a prevailing forecast that economic growth will slow down. Recently, Moody's Analytics, a subsidiary of the international credit rating agency Moody's, lowered its global economic growth forecast from 2.8% to 2.5% annually, citing the novel coronavirus as a serious threat to China and the global economy. As analyses emerged that the novel coronavirus could hinder Korea's economic recovery, Samsung Securities lowered its domestic economic growth forecast for the first quarter from 2.6% to 2.4%, and Korea Investment & Securities projected growth of only 1.6% in the first quarter.

Accordingly, opinions have emerged that government stimulus measures are necessary. Gong Dong-rak, a researcher at Daishin Securities, analyzed, "The GDP growth rate in the first quarter was expected to record a slight increase compared to the unexpectedly high 1.2% GDP growth rate in the fourth quarter of last year, but doubts about this have increased due to the impact of the novel coronavirus situation." He emphasized, "Considering various circumstances, concerns about negative growth in the first quarter have significantly increased. The role of policies for economic stimulus or defense has become greater."

This content was produced with the assistance of AI translation services.