Direct Hit to Earnings from COVID-19... Accelerating Downward Trend in Q1 Operating Profit Forecast

KOSPI Down 24.16%, Revised Down 20.05% from Previous Month... Only Food & Beverage and Pharmaceuticals Upward Adjusted

[Asia Economy Reporter Song Hwajeong] Concerns over corporate earnings due to the novel coronavirus infection (COVID-19) are growing, leading to a sharp downward revision of earnings forecasts.

According to financial information firm FnGuide on the 17th, the consensus operating profit for KOSPI-listed companies in the first quarter of this year is 24.4846 trillion KRW, down 24.16% compared to the same period last year. This figure represents a 20.05% downward revision compared to a month ago.

By industry, among the 18 sectors with consensus estimates, only two sectors?Food & Beverages and Pharmaceuticals?saw upward revisions in their forecasts.

In the transportation and warehousing sector, which includes airline stocks hit directly by COVID-19, an operating loss of 134.1 billion KRW is expected. This forecast has been drastically revised downward by 134.14% compared to a month ago. For Korean Air, the first quarter operating profit consensus was 104.4 billion KRW in January, dropped to 82.3 billion KRW in February, and a 40.6 billion KRW operating loss was expected in March. This month, the deficit widened further to 167.9 billion KRW. Asiana Airlines was also expected to record an operating loss of 38.1 billion KRW in February, but the deficit expanded significantly to 163.4 billion KRW this month.

Due to the decline in oil prices, losses are expected in refining stocks, causing the chemical sector consensus to fall by 99.63% compared to a month ago. SK Innovation is forecasted to record an operating loss of 725.5 billion KRW in the first quarter, turning to a deficit. SK Innovation’s operating profit consensus plunged from 324.5 billion KRW in January to 71.8 billion KRW in February, and then to a 472.9 billion KRW operating loss in March. This time, the deficit widened to the 700 billion KRW level. S-Oil is also expected to post an operating loss of 477.4 billion KRW. Its January consensus was 279.6 billion KRW, revised down to 65.7 billion KRW in February, and then sharply declined to a 280.4 billion KRW loss in March.

Other sectors with significant downward revisions in operating profit forecasts over the past month include Insurance (-51.65%), Securities (-46.40%), Transportation Equipment (-23.21%), and Distribution (-18.9%).

On the other hand, the first quarter operating profit forecast for Food & Beverages is 569 billion KRW, an increase of 22.65% compared to the same period last year. This is a 2.28% upward revision compared to a month ago. Pharmaceuticals are expected to increase by 110.19% to 256.3 billion KRW, a 0.19% upward revision from a month ago.

Researcher Kang Bongju of Meritz Securities said, "The speed of downward revisions in earnings forecasts during this COVID-19 phase is the fastest compared to previous major earnings decline phases," adding, "It is highly likely that the entire second quarter will be affected by COVID-19, and some level of impact is inevitable even after the third quarter." Kang also noted, "Even if economic activities resume, a phased normalization is expected, making further downward revisions unavoidable."

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