Midterm Report of the 'Earnings Season'... More Than Half of KOSPI Listed Companies Fall 'Below Expectations'

[Asia Economy Reporter Ji Yeon-jin] Among 217 KOSPI-listed companies, 106 have announced their Q4 earnings for last year, with more than half falling short of market expectations.

According to Daishin Securities on the 7th, based on the earnings announced so far, the total sales and operating profit of KOSPI exceeded market forecasts by 3.5% and 2.9%, respectively. However, net profit is currently 16.2% below expectations. Excluding financial companies, sales exceed forecasts by 0.6%, while operating profit falls short by 2.1%.

Looking at the number of companies, the proportion falling short of earnings forecasts is higher than those exceeding them. The ratio of companies surpassing operating profit forecasts is 43.4%, while 56.6% fell short. Considering that Q4 earnings have historically underperformed consensus estimates every year, this is seen as a favorable trend. It is expected that both final operating profit and net profit will likely fall below consensus, but the gap will not be as large as in the past.

Display, automotive, construction, and telecommunications sectors reported earnings exceeding consensus, while energy, semiconductor, shipbuilding, banking, and steel sectors posted results below expectations. By market capitalization, mid-to-large cap stocks are showing better performance compared to small caps.

Operating profit forecasts for KOSPI companies this year continue to be revised upward. Since the earnings forecast upgrades began in earnest last October, the 2021 KOSPI operating profit consensus has risen by 7.0%. Expectations for economic recovery remain strong, with earnings forecast upgrades led by cyclical and export-driven stocks.

However, it is necessary to keep in mind the possibility of a slowdown in the pace of earnings forecast upgrades in the short term. The KOSPI 12-month forward earnings revision ratio rose to 19.1% in January this year but has fallen to 2.2% as of February. The recent slowdown in the recovery of global economic indicators, due to economic lockdown measures following a surge in COVID-19 cases in major countries in the second half of last year, is analyzed to have influenced the deceleration in earnings forecast upgrades.

Kim Ji-yoon, strategist at Daishin Securities, stated, "Since the onset of the COVID crisis, the gap between earnings and stock prices has widened significantly," adding, "About 200 days after the KOSPI index hit its low in March last year, the gap between stock prices and 12-month forward EPS has widened to 96.1 percentage points. Compared to the peak gap of 72.3 percentage points during the stock market boom immediately after the 2008 financial crisis, the current pace of stock price increases is at a burdensome level."

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