The Stock Market Rebounded, but Corporate Earnings Dropped Sharply

[Asia Economy Reporter Song Hwajeong] Although the stock market has successfully rebounded from the sharp decline caused by the novel coronavirus infection (COVID-19), concerns about corporate earnings are growing. Analysis suggests that future stock price recovery of companies will also be differentiated based on their earnings.

According to financial information provider FnGuide on the 27th, the consensus operating profit for KOSPI-listed companies in the first quarter of this year is 28.9963 trillion KRW, a 9.48% decrease compared to the same period last year. This figure has been revised downward by 9% compared to a month ago. The earnings forecast for the second quarter is also continuously declining. The consensus operating profit for KOSPI-listed companies in the second quarter is expected to increase by 8.88% year-on-year to 32.3465 trillion KRW, but it has also been revised downward by 5.55% compared to a month ago.

Most industries have not escaped downward revisions. Among the 18 major KOSPI industries with consensus estimates, only two industries?pharmaceuticals and non-metallic minerals?did not see their forecasts lowered over the past month. In the second quarter, only textiles/apparel and insurance avoided downward revisions.

The chemical and transportation/warehousing sectors experienced significant earnings downgrades. The consensus operating profit for the chemical industry in the first quarter decreased by 48.97% to 1.6195 trillion KRW, which is 33.04% lower than a month ago. The transportation/warehousing sector, which includes airline stocks, saw a 44.77% decrease to 337.2 billion KRW, revised downward by 31.38% compared to a month ago. The electrical and electronics sector, which was expected to recover this year, has not escaped the COVID-19-related earnings slowdown. Samsung Electronics’ first-quarter operating profit consensus increased by 2.53% to 6.3912 trillion KRW but has fallen by 3.28% in the past month. SK Hynix’s forecast was revised downward by 5.94%, and concerns over the electric vehicle market due to COVID-19 caused Samsung SDI’s estimate to drop by 21.87%. Refinery stocks, hit hard by the sharp drop in oil prices, saw very large earnings downgrades. Both SK Innovation and S-Oil’s first-quarter operating profit consensus turned to losses.

Researcher Cho Seungbin of Daishin Securities said, "Since the beginning of the year, Dubai crude oil prices have fallen by 62%, and large-scale inventory valuation losses and negative lagging effects (due to timing differences between crude oil imports and product shipments) will be reflected in first-quarter earnings." He added, "Due to the sharp decline in passenger demand caused by the spread of COVID-19, the deterioration of airline earnings in the first half of the year is inevitable, and automobile sales slumps due to production disruptions followed by consumption contraction will become a reality."

Researcher Cho added, "It is concerning that semiconductor earnings forecasts, which had shown relatively stable trends, have started to be revised downward. With expected weakening in set demand due to COVID-19, if semiconductor earnings downgrades continue rather than being short-term, it could lead to increased skepticism about the possibility of KOSPI earnings improvement this year."

There is a forecast that future stock price recovery of companies will also be differentiated according to earnings improvement. Researcher Lee Jinwoo of Meritz Securities said, "Currently, the market is still in an area of excessive decline, so broad stock price recovery is natural, but once the fear subsides, the market will eventually start verifying earnings." He predicted, "The stock price differentiation between companies with strong earnings recovery and those without will intensify."

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