Q1 Earnings Shock Inevitable... Q2 Also Severe

In Early This Year, Operating Profit of 117 Companies in Q2 Drops 10.8% Compared to 3 Months Ago Forecast
Direct Hit to Casino and Refining Industries

[Asia Economy Reporter Oh Ju-yeon] Due to the impact of the novel coronavirus infection (COVID-19), the operating profits of domestic listed companies in the first quarter of this year are expected to fall significantly short of market expectations, raising the likelihood of an 'earnings shock.' The real issue lies in the second quarter. Although it depends on whether COVID-19 continues, the earnings estimates for the second quarter are already declining. While positive growth is still expected compared to the second quarter of last year, it has decreased by more than 10% compared to estimates made three months ago.

According to FnGuide, a financial information company, the operating profit of 117 companies estimated by three or more securities firms for the second quarter of this year is expected to be 21.8568 trillion won. This represents a 14.70% increase compared to 19.0559 trillion won in the second quarter of last year, but it is significantly lower than the forecast made three months ago.

At the beginning of this year, the estimated operating profit for the second quarter of these companies was 24.5064 trillion won, expected to increase by 28.6% year-on-year. This was because the performance of domestic companies, which had sharply declined due to the intensification of the US-China trade dispute last year, was expected to normalize, and the base effect was anticipated to contribute to significant growth. However, the expected increase shrank sharply due to COVID-19. The forecast made before the COVID-19 issue emerged has evaporated by 10.8% (2.65 trillion won).

The decline in expected earnings was particularly notable in the casino industry, which has struggled to attract foreign tourists due to unprecedented measures such as border closures, and the refining industry, which was hit hard by the plunge in international oil prices.

Paradise was expected, until three months ago, to record an operating profit of 25.3 billion won in the second quarter of this year, a 438.3% surge from 4.7 billion won in the same period last year, and to turn a net profit from a loss of 7.5 billion won to 15.1 billion won. However, due to COVID-19 and travel restrictions imposed by various countries, as well as the difficulty in a quick recovery of major customer groups such as Chinese VIPs and Japanese VIPs until the second quarter, operating profit shrank by 74.0% from three months ago to 6.6 billion won. Net loss is expected to widen to 14.1 billion won, exceeding last year's deficit level.

The refining industry’s earnings forecasts have been sharply cut due to the collapse of international oil prices to levels threatening $20 per barrel, worsening refining margins, and losses on crude oil inventory valuation. SK Innovation was expected to record an operating profit of 527.9 billion won in the second quarter, a 6.0% increase year-on-year, but due to the oil price drop and demand decrease caused by COVID-19, it is now projected to fall to 175.4 billion won, about one-third of the previous estimate. S-Oil’s operating profit estimate for the same period also nearly halved, dropping from 396 billion won to 205 billion won (-48.2%).

The airline industry, already struggling, is expected to see losses widen further. Korean Air was forecast to record an operating profit of 58.8 billion won in the second quarter before COVID-19, but it is now estimated to post a loss of 42.1 billion won instead of positive growth. Jeju Air is expected to incur a loss of 44 billion won, expanding from the previous estimate of a 15.6 billion won loss three months ago.

This level of earnings decline could worsen depending on the progression of COVID-19. Although the Ministry of Trade, Industry and Energy announced that March exports decreased by only 0.2% year-on-year, which was considered better than expected, the US and EU, which had maintained export growth, are now experiencing the full impact of COVID-19. Reflecting this timing could affect domestic export companies, raising concerns about economic indicators to be released from April onward. Kwon Ah-min, a researcher at NH Investment & Securities, diagnosed, "Export indicators to the US and EU, where COVID-19 cases began to surge from the end of March, are expected to show a slowdown."

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