Overall Corporate Environment Improves... The Problem Is Polarization

Hana Financial Research, Industrial Environment Report
Semiconductor, Secondary Battery, IT Industry on the Rise
Traditional Industries and Domestic Services Face Challenges
KOSPI Companies Expected to See Sharp Revenue Growth This Year
Widening Competitiveness Gap Anticipated

[Asia Economy Reporter Kangwook Cho] Even if the economy recovers this year, the shock from the novel coronavirus infection (COVID-19) is expected to deepen polarization across industries. It is pointed out that the performance gap between IT industries and traditional industries, export manufacturing and domestic service sectors, and large corporations and small businesses will intensify. In particular, concerns have been raised that confusion surrounding the extension of loan principal and interest repayment deferrals will continue, causing starkly contrasting fortunes among industries and social classes.

On the 18th, Hana Financial Management Research Institute forecasted in its report "The Bright and Dark Sides of the Industrial Environment in 2021" that the business conditions in the industrial sector will improve this year due to expanded government investment, vaccine development, and economic recovery in major countries. In particular, IT industries such as semiconductors, secondary batteries, and information services are expected to lead the growth trend.

Researcher Youngjun Kim explained, "With continued government investment related to the 4th Industrial Revolution such as the Korean New Deal, and the easing of lockdown measures in major countries due to vaccine development, both domestic and international economies are expected to recover together, so the corporate environment this year will improve compared to last year."

According to FnGuide, the sales revenue of KOSPI-listed companies is estimated to increase significantly from 1,858 trillion won last year to 2,017 trillion won this year, an 8.5% rise, and operating profit is expected to surge from 127 trillion won to 179 trillion won, a 41.0% increase. The recent breakthrough of the KOSPI index past the 3,000 mark for the first time ever is also analyzed to be supported by confidence in improved corporate performance.

However, the problem lies in the deepening polarization. While IT companies are expected to see significant performance improvements due to benefits from untact sectors such as semiconductors, secondary batteries, and online distribution, traditional manufacturing and service sectors are expected to see less improvement. In particular, the production scale of traditional manufacturing industries such as automobiles, shipbuilding, steel, and petroleum is projected to fall significantly short this year.

The recovery trends of manufacturing and service sectors are also differentiated. Export-oriented manufacturing is expected to recover performance supported by demand recovery in overseas markets. On the other hand, domestic-oriented service sectors such as wholesale and retail, transportation, and restaurants are expected to see widening competitiveness gaps by scale due to the resurgence of COVID-19 and strengthened social distancing measures.

The approaching end of COVID-19 support funds and loan principal and interest repayment deferrals at the end of March is also cited as a risk factor. According to the Financial Services Commission, the liquidity support provided by financial institutions to companies since February last year amounts to 277 trillion won. In particular, the amount supported by private financial institutions through loan maturity extensions and interest deferrals is about 126 trillion won.

Thanks to such liquidity support, corporate financial conditions have improved, with the delinquency rate falling to 0.42% (October), down 0.18 percentage points compared to the same month last year, and the number of companies filing for corporate rehabilitation until November last year decreased by more than 100 to 809 compared to the same period in 2019.

However, this is pointed out as merely an illusion caused by liquidity support. According to the Bank of Korea, without liquidity support, the corporate delinquency rate last year would have risen to 0.93%, and if financial support is not extended, the liquidity shortage amount for companies is estimated at 7.7 trillion won, with the proportion of companies facing liquidity shortages reaching 7.0%. Liquidity shortages are expected to mainly appear in sectors such as aviation, petrochemicals, and wholesale and retail.

Researcher Kim said, "If liquidity support is cut off, marginal companies hit by COVID-19 are highly likely to be driven to default," adding, "However, unlimited liquidity support cannot continue, as it would increase the burden on financial institutions and likely produce more insolvent companies, delaying corporate restructuring and industrial reorganization."

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