Not a Rebound but the 'Aftershock of COVID-19'... Listed Companies Face Increasing Difficulties

[Asia Economy Reporters Hyungkwang Ko and Juyoun Oh] As the earnings of major domestic companies continue to decline, the business environment is worsening further due to the overlapping COVID-19 crisis. Until the end of last year, the securities industry expected that the earnings of listed companies in Korea would improve in the first quarter of this year compared to the previous year, but the outbreak of COVID-19 abruptly reversed the mood, and recently concerns about the risk of economic downturn have emerged.

According to FnGuide, a financial information company, as of the 10th, the operating profit consensus (forecast) for the first quarter of this year for 82 listed companies in Korea, estimated by three or more securities firms, shows that the operating profits of about 70% of these companies, or 58 companies, have decreased compared to three months ago. The total operating profit consensus was recorded at 17.2458 trillion KRW, down 10.3% (1.9878 trillion KRW) from the 19.2336 trillion KRW expected three months ago.

Until the end of last year, the securities industry expected that the 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 for the first quarter of this year were expected to be 11.3462 trillion KRW, a 13.89% increase from 9.9625 trillion KRW in the first quarter of last year.

However, the mood changed drastically within about three months. Due to the worsening business environment caused by the COVID-19 crisis, expectations that corporate earnings would recover compared to last year turned into concerns. Jae-eun Kim, a researcher at NH Investment & Securities, explained, "COVID-19 is affecting all industries, causing the earnings consensus estimates for listed companies in the first quarter of this year to fluctuate significantly."

Looking at major companies, Samsung Electronics and SK Hynix, the world's top one and two memory chip makers, experienced a slump last year with operating profits plummeting by more than 60% due to the global semiconductor market downturn, and this year is not expected to be much different. The operating profit forecasts for Samsung Electronics and SK Hynix for the first quarter of this year are 6.5646 trillion KRW and 486.7 billion KRW, respectively. Samsung Electronics is expected to show a slight increase of 5.3% compared to the previous year due to the base effect, but SK Hynix is expected to drop sharply by 64.4% compared to the previous year. Samsung Electronics’ forecast decreased by 0.9% compared to January 17, before the COVID-19 outbreak.

The airline industry, hit directly by the COVID-19 crisis, received the expected 'negative' results last year. Korean Air's operating profit last year was 261.9 billion KRW, a sharp decline of 59.1% compared to the previous year, and Asiana Airlines posted an operating loss of 427.4 billion KRW last year, turning to a deficit. The problem is that earnings are expected to worsen further in the first half of this year. Although the first quarter is usually classified as a peak season for the airline industry along with the third quarter, considering that COVID-19 spread from mid-January and most airlines have suspended their China routes, it is difficult to expect operating profits in the first quarter. Korean Air’s operating profit forecast for the first quarter of this year is 87.2 billion KRW, down 38.0% from the previous year. Compared to the forecast of 145.1 billion KRW three months ago, it has decreased by nearly 40%.

The refining and petrochemical sectors, as well as steel and metals, which are expected to suffer losses due to the suspension of operations at local factories in China, are more severely affected by the COVID-19 impact. For S-Oil, the operating profit forecast for the first quarter of this year dropped 76.5% from 391.5 billion KRW three months ago to 91.9 billion KRW. SK Innovation’s first-quarter operating profit forecast also fell 74.5% from 503.8 billion KRW to 128.3 billion KRW.

Hyundai Steel and POSCO also saw their operating profit forecasts decrease by 58.0% and 16.9%, respectively, compared to three months ago, and Samsung SDI and LG Chem, which have recently gained attention as electric vehicle battery-related stocks, also dropped by 54.7% and 52.8%, respectively.

In the automobile sector, last year, the operating profits of the three major companies in the Hyundai Motor Group increased by 15.5% compared to the previous year, showing a favorable trend, but this year, due to supply disruptions of Chinese parts causing factory shutdowns, the sector is unlikely to escape the impact of the COVID-19 crisis. The international credit rating agency Standard & Poor's (S&P) recently forecasted that the parts supply disruption caused by the novel coronavirus would negatively affect the first-quarter earnings of Hyundai Motor and Kia Motors this year. S&P predicted, "The parts supply disruption will increase the burden on the entire production process in the first quarter and intensify profitability pressure." Kia Motors is expected to see its first-quarter operating profit decrease by about 13% compared to the previous year.

Dongnak Gong, a researcher at Daishin Securities, diagnosed, "The GDP growth rate for the first quarter was expected to record a slight plus compared to the 1.2% GDP growth rate in the fourth quarter of last year, which was higher than expected, but doubts about this have increased due to the COVID-19 impact." He emphasized, "Considering various circumstances, concerns about negative growth in the first quarter have significantly increased, and the role of policies for economic stimulus or defense has become greater."

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