Earnings Defensive Stocks Gaining Attention Amid Lowering Expectations

Q2 COVID-19 Impact Unavoidable
33 Stocks' Earnings Forecasts Upgraded... Downward Revisions More Than Double at 74 Stocks

[Asia Economy Reporter Song Hwajeong] As companies posted better-than-expected first-quarter earnings this year, the downward revision of earnings forecasts, which had stalled, has resumed. This is because concerns about second-quarter earnings have increased. Due to the impact of the novel coronavirus disease (COVID-19), poor corporate earnings are inevitable, so stocks with upwardly revised earnings are expected to play a defensive role.

According to financial information provider FnGuide on the 12th, an analysis of changes in earnings estimates compared to the end of the previous month for stocks with consensus estimates from three or more institutions showed that out of a total of 243 stocks, only 33 had upward revisions in earnings forecasts as of the end of April. On the other hand, 74 stocks were revised downward, more than twice the number of upward revisions.

Researcher Cho Seungbin of Daishin Securities said, "Over the past week, the KOSPI second-quarter operating profit consensus fell 5.8% compared to the previous week," adding, "At the beginning of the first-quarter earnings season, many companies reported results exceeding consensus, so downward revisions seemed to be slowing, but large-cap stocks such as SK Innovation, S-Oil, and Hotel Shilla recorded massive earnings shocks, causing downward revisions to resume."

While overall corporate earnings expectations are declining, earnings forecasts for representative defensive sectors such as consumer staples and telecommunications were selectively revised upward. Among consumer staples, Orion and Dongwon F&B, and in telecommunications, KT's second-quarter operating profit consensus rose respectively. Orion's second-quarter operating profit consensus was revised up 1% from 65.1 billion KRW at the end of April to 65.8 billion KRW recently. Dongwon F&B also rose 1.1% from 15 billion KRW at the end of the previous month to 15.1 billion KRW recently. KT was slightly revised upward by 0.2% from 315.1 billion KRW to 315.8 billion KRW. Researcher Cho explained, "Orion's improved earnings are driven by increased confectionery consumption due to COVID-19," and "KT's earnings impact from COVID-19 is limited due to the nature of the industry, and a full-scale earnings turnaround is expected in the second half."

The shipbuilding sector saw a large upward revision. Daewoo Shipbuilding & Marine Engineering's second-quarter operating profit consensus was revised up 23.3% from 55 billion KRW at the end of last month to 67.8 billion KRW recently. Hyundai Heavy Industries Holdings, initially expected to report an operating loss of 14.5 billion KRW, recently turned to an operating profit forecast of 56.1 billion KRW. Hyundai Mipo Dockyard rose 2.3% from 27.9 billion KRW to 28.5 billion KRW. Researcher Kim Sangho of Shinhan Investment Corp. analyzed, "The shipbuilding sector's first-quarter earnings exceeded consensus due to exchange rate increases and the accounting reflection of heavy plate prices, leading to a significant upward revision of consensus."

With the spread of non-face-to-face (untact) culture due to COVID-19, earnings forecasts for related stocks such as internet and gaming also improved. Kakao's second-quarter operating profit consensus rose 4.1% from 91.2 billion KRW at the end of last month to 95 billion KRW, and DoubleU Games rose 14.5% from 40.5 billion KRW to 46.3 billion KRW. KB Securities researcher Lee Dongryun said about Kakao, "Rapid growth and profitability improvement in non-advertising services such as paid content, techfin, and mobility will be key drivers of growth in the first half," adding, "Second-quarter revenue is expected to be 913.8 billion KRW, up 24.7% year-on-year, and operating profit is expected to be 92.6 billion KRW, up 128.8%, showing solid performance." Hyundai Motor Securities researcher Choi Jinseong said, "DoubleU Games recorded its highest quarterly sales following the growth of its flagship game 'DoubleDown Casino (DDC)' and the strong dollar effect in the first quarter of this year, continuing from the fourth quarter of last year," and predicted, "Earnings will grow further in the second quarter as the impact of COVID-19 is reflected."

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