COVID-19 Impact Continues to Chill Corporate Earnings "Second Half Also Bleak"

Increase in Debt and Decrease in Operating Profit in Major Affected Industries such as Automobile, Aviation, Distribution, and Travel
Growing Concerns for the Second Half Due to COVID-19 Resurgence

[Asia Economy Reporter Changhwan Lee] It has been revealed that the debts of representative companies in the automobile, aviation, and distribution industries surged in the second quarter due to the spread of the novel coronavirus infection (COVID-19). There are concerns that damages will continue in the second half of the year as COVID-19, which had once subsided, is recently resurging.

On the 20th, Asia Economy analyzed the semi-annual reports of companies representing industries affected by COVID-19 such as automobiles, aviation, hotels, and travel, and found that debt ratios increased while operating profit margins significantly declined.

In the automobile sector, where sales decreased due to COVID-19, Ssangyong Motor's debt ratio at the end of the second quarter rose to 821% from 755% in the previous quarter. During the same period, Kia Motors increased from 93% to 101%, and Hyundai Motor from 161% to 165%.

The debt ratio is a representative indicator of corporate soundness, showing the extent of debt among held assets. The debt ratio of a sound company generally does not exceed 100%. If this ratio exceeds 200-300%, it is considered a signal of financial risk.

Operating profit margins also worsened. From the first to the second quarter, Ssangyong Motor's operating profit margin dropped from -15% to -16%, Kia Motors from 3% to 1%, and Hyundai Motor from 3% to the 2% range.

Among airlines, the performance slump of low-cost carriers (LCCs) was severe. Jeju Air's debt ratio in the second quarter sharply increased to 876% from 483% in the previous quarter. Its operating profit margin plummeted from -28% to -237%. In contrast, Korean Air and Asiana Airlines succeeded in turning a profit by increasing cargo instead of passengers.

The damage to the hotel and travel industries was also severe. Hotel Shilla's debt ratio rose from 296% in the first quarter to 330% in the second quarter, and Hana Tour's from 211% to 262%. Both companies also saw an increase in operating losses. This is interpreted as a result of significantly reduced travel demand due to COVID-19.

Distribution companies are also struggling as consumption stagnates. Shinsegae's debt ratio increased from 143% to 164%, and it turned to a deficit in the second quarter. Lotte Shopping also barely made any profit in the second quarter.

Looking at companies overall, the debt ratio increased due to the impact of COVID-19. The Korea Exchange analyzed the semi-annual reports of 690 companies listed on the KOSPI market and found that their consolidated debt ratio was 115.96% as of the end of June, up 3.17 percentage points from the end of last year.

The bigger problem is that COVID-19 is recently resurging, so damages are expected to continue in the second half of the year. The government recently raised the quarantine level in the Seoul and Gyeonggi areas from social distancing level 1 to level 2 and issued a ban on gatherings in the metropolitan area, prohibiting group meetings and events.

COVID-19 confirmed cases are also rapidly increasing within companies. Accordingly, there are concerns that related industries will be hit again and that performance recovery may be delayed.

A representative from the business community said, "Until a few weeks ago, there was hope for performance improvement in the second half as COVID-19 had subsided, but concerns have grown again."

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