Excluding 'Bandochae', Top 100 Companies' Operating Profit Down 22%... Abundant Cash Assets

[Asia Economy Reporter Kim Hyewon] Despite the impact of the novel coronavirus disease (COVID-19), major domestic companies posted solid third-quarter earnings, buoyed by the semiconductor boom. However, analysts say this is merely an optical illusion caused by the recovery of the semiconductor industry, which holds a significant share in our economy, and it is difficult to view this as a full-fledged economic rebound. While it is positive that Korean companies maintained investment levels similar to last year despite the COVID-19 adversity, their reliance on borrowing has increased.

On the 15th, the Korea Economic Research Institute analyzed the performance of the top 100 listed companies by sales last year for the first to third quarters of this year. It found that cumulative operating profit, excluding Samsung Electronics and SK Hynix, decreased by 21.9% compared to the same period last year. Including these two companies, operating profit increased by 6.8% year-on-year to 35.9 trillion won during the same period.

This figure reflects the semiconductor effect. Samsung Electronics and SK Hynix accounted for more than half (51.3%) of the operating profits of the top 100 listed companies. In monetary terms, this corresponds to 18.4 trillion won. The operating profits of the remaining 98 companies (17.5 trillion won) decreased by 21.9% compared to the same period last year.

The cumulative sales of the top 100 listed companies, including semiconductor companies, for the first three quarters reached 611.6 trillion won, down 3.9% year-on-year. Investment rose by 11.7% to 49.8 trillion won. Even excluding Samsung Electronics and SK Hynix, investment decreased by only 3.3% during the same period, indicating a relatively strong performance despite the COVID-19 crisis.

The Korea Economic Research Institute evaluated that the earnings rebound up to the third quarter of this year is largely an optical illusion caused by the recovery of the semiconductor industry, which holds a significant share in our economy, making it difficult to be optimistic about a full-fledged economic recovery. However, it explained that it is positive that companies maintained investment levels similar to the previous year despite adverse conditions.

The Korea Economic Research Institute also noted the sharp increase in cash assets and borrowing scale of major companies. The cumulative operating cash flow of the top 100 listed companies for the third quarter of this year was 74.7 trillion won, an increase of 23.3 trillion won compared to the same period last year. At the same time, financial activity cash flow (-1 trillion won) and cash assets (113.1 trillion won) also increased by 11.8 trillion won and 19.5 trillion won, respectively, during the same period. This is interpreted as a tendency for companies to hold cash rather than use the money earned from operating activities to repay borrowings due to increased domestic and international uncertainties. In fact, the cash assets of the top 100 listed companies have increased for five consecutive quarters since the second quarter of last year, reaching the highest level in the past five years.

In particular, excluding Samsung Electronics and SK Hynix, financial activity cash flow shifted from a net outflow of 4.3 trillion won last year to a net inflow of 3.9 trillion won this year. The increase in financial activity cash flow (8.2 trillion won) exceeded the increase in operating cash flow (5.9 trillion won), indicating that borrowing dependence among major companies excluding semiconductors has expanded.

Choo Kwang-ho, head of economic policy at the Korea Economic Research Institute, said, "Major companies excluding semiconductors have continued to experience poor performance up to the third quarter this year due to the direct hit from COVID-19, and with the recent resurgence of COVID-19 and growing domestic and international uncertainties, the future outlook is unpredictable." He emphasized, "Proactive government policy support is needed to resolve uncertainties so that the cash held by companies can lead to a virtuous cycle of investment, employment → production → profit."

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