Strong Performance... "Top 3300 This Year" (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Oh Ju-yeon] The KOSPI, which had fallen to 1400 last year, has doubled thanks to the power of liquidity. However, stock prices cannot continue their high-flying run on liquidity alone. Additional gains can be expected only if supported by earnings. The securities industry expects KOSPI operating profits to increase by more than 40% this year, leading to upward revisions in KOSPI forecasts.

◆The Era of KOSPI 3000, Supported by Earnings = According to financial information provider FnGuide, the operating profits of 259 listed companies estimated by three or more securities firms for the fourth quarter of last year are expected to reach 35.9362 trillion KRW, a 60.01% increase compared to the same period last year. In the fourth quarter of 2019, these companies’ operating profits were only 22.4584 trillion KRW.

Including 26 companies turning profitable and 3 companies reducing losses, a total of 184 companies (71.04%) are expected to improve their operating profits in the fourth quarter of 2020. This means that 7 out of 10 companies have fundamentals that improved compared to the previous year.

The industries with the most remarkable operating profit growth rates are secondary batteries, chemicals, and electrical equipment. LG Chem and Samsung SDI are expected to post operating profits of 812.8 billion KRW and 318.1 billion KRW respectively in the fourth quarter of last year, representing increases of 4200.1% and 1480.5% compared to the same period last year. Samsung Electronics, which individual investors bought the most last year, is estimated to have operating profits of 9.9512 trillion KRW in the fourth quarter, a 39.0% increase year-on-year.

This earnings growth trend is likely to continue into the first quarter of this year. The operating profit estimates for 142 listed companies in the first quarter of this year, estimated by three or more securities firms, are expected to reach 34.4161 trillion KRW, a 59.68% increase from 21.5527 trillion KRW in the first quarter of last year. Among these, 107 companies are expected to increase operating profits compared to the same period last year, and including 12 companies turning profitable and 3 companies reducing losses, 85.92% of the total are expected to improve earnings.

Accordingly, operating profit estimates for domestic KOSPI-listed companies this year are also being revised upward. The securities industry expects KOSPI operating profits to reach 184 trillion KRW and net profits to be 134 trillion KRW this year. Hana Financial Investment estimates even higher, projecting net profits of KOSPI-listed companies to reach 160 trillion KRW, a 45% increase year-on-year, while KB Securities raised its KOSPI net profit estimate from 120 trillion KRW to 135.6 trillion KRW. The 'semiconductor super cycle' and 'profit growth in cyclical industries' due to a weak dollar are cited as major factors.

According to KB Securities, in the past 20 years, KOSPI operating profits surged by more than 30% only three times?in 2004, 2010, and 2017?and the common factor was that operating profits of both the 'semiconductor sector' and 'non-semiconductor sectors' increased simultaneously. Typically, semiconductors and cyclical industries have opposite cycles, so it is very rare for profits to increase at the same time. However, the faster-than-expected vaccine rollout has accelerated the semiconductor super cycle, originally expected to peak in the second quarter, and the recent weak dollar has led to higher commodity prices and stronger emerging market currencies, boosting profit estimates for cyclical and domestic sectors.

◆Upward Revisions in Securities Firms’ Forecasts = Securities firms’ KOSPI forecast bands for this year are also surpassing 3000. Especially, with the stock market rally continuing unabated from the first day of the new year, the upper limit of the KOSPI is being continuously revised upward.

Samsung Securities raised its KOSPI forecast from the previous 2100?2850 to 2700?3300. It expects KOSPI operating profits to reach 218 trillion KRW in 2022, which would be a record high, surpassing the 197.4 trillion KRW peak during the semiconductor super cycle in 2018. Oh Hyun-seok, head of Samsung Securities Research Center, said, "The reflationary policy environment (expansionary fiscal policy + accommodative monetary policy) in major countries, the rush for COVID-19 vaccine and treatment development and administration, and the rapid normalization potential of Korea’s export economy and corporate earnings based on semiconductor and China macro recovery are positive factors for the stock market."

Shinhan Financial Investment also raised the top end of its KOSPI forecast from 2700 to 3300, citing expected corporate value increases centered on new growth industries. From August 2004 to July 2007, the KOSPI rose 171% led by energy, materials, and industrial sectors, during which the 12-month forward price-to-earnings ratio (PE) of the KOSPI increased from 5.6 to 13.0, significantly narrowing the global gap. Currently, the value of Korea’s new growth industries is about 88% of the global level, and this gap is expected to narrow. Yoon Chang-yong, head of Shinhan Financial Investment Research Center, said, "Profitability of Korean growth industries has improved since 2019," and "The KOSPI is expected to peak between the end of the first quarter and the second quarter."

KB Securities also raised the top end of its KOSPI forecast to 3300, while Meritz Securities and Hana Financial Investment set it at 3200. Shin Dong-jun, head of KB Securities Research Center, said, "Although the KOSPI surged about 30% since last November, which may trigger some profit-taking, the preference for risky assets is expected to continue due to liquidity, earnings, vaccines, and stimulus expectations."

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