Last Year’s Listed Companies Show Clear K-Shaped Polarization... Mixed Fortunes Despite 25% Operating Profit Growth

[Asia Economy Reporter Jeong Hyunjin] Last year, the performance of domestic companies showed a 'K-shaped polarization' pattern due to the impact of COVID-19. While the operating profit of all companies increased by 25%, some sectors such as medical/pharmaceutical and electrical/electronics benefited, whereas traditional manufacturing industries including machinery and transportation equipment, as well as distribution and face-to-face services, were hit, resulting in mixed fortunes across industries.

According to an analysis of financial statements of 1,017 non-financial listed companies on the KOSPI and KOSDAQ by the Korea Economic Research Institute under the Federation of Korean Industries on the 5th, the operating profit of domestic listed companies last year recorded 67.3 trillion KRW, up 24.9% from the previous year. Sales amounted to 1,076.1 trillion KRW, a 1.5% decrease compared to 2019. The Korea Economic Research Institute explained, "(The increase in operating profit) is due to the base effect from a significant decrease in operating profit in 2019 and improved profit margins in key industries such as semiconductors and home appliances that enjoyed COVID-19 tailwinds."

The increase in operating profit was concentrated in COVID-19 beneficiary industries and some companies, clearly showing a K-shaped polarization among companies. The sales quintile ratio of listed companies expanded from 266.6 times in 2019 to 304.9 times last year. The average operating profit difference between the top and bottom 20% of companies by sales also increased by 28.3%, from 238.6 billion KRW in 2019 to 306.02 billion KRW last year. The profit gap between top and bottom companies widened further.

Although overall operating profit increased, the number of companies with an interest coverage ratio below 1, meaning they could not even cover interest expenses with operating profit, rose from 249 in 2019 to 255 in 2020, an increase of 6 companies. This corresponds to 25.1% of listed companies, up 0.6 percentage points from the previous year.

(Data = Korea Economic Research Institute)

The polarization pattern was prominent by industry. The sector with the largest increase in operating profit last year was the medical and pharmaceutical industry. Due to increased demand for COVID-19 diagnostic kits, operating profit surged by 125.7% compared to the previous year. Also, the electrical and electronics sector saw a 64.0% increase in operating profit as demand for TVs, PCs, and other products rose significantly due to COVID-19.

The food and beverage sector benefited from social distancing measures related to COVID-19, especially through home meal replacements (HMR), with operating profit increasing by 27.4% year-on-year. Software, internet, and broadcasting services also saw a significant increase of 18.6%, reflecting the benefits of non-face-to-face industries.

On the other hand, traditional manufacturing industries such as machinery, transportation equipment, steel and metals, and chemicals experienced a decline in operating profit compared to 2019. The machinery sector was hit the hardest with a 72.8% decrease in operating profit, followed by transportation equipment at 38.7%, steel and metals at 37.8%, and chemicals at 27.1%. Operating profits in distribution, face-to-face services, and business services also fell by 26.4% and 39.1%, respectively.

Within industries, a concentration phenomenon among companies was observed. An analysis of seven sectors with more than 10% operating profit growth last year (electrical/electronics, medical/pharmaceutical, software/internet/broadcasting services, transportation/warehousing, telecommunications, food and beverage, and non-metallic minerals) showed that the top three companies accounted for between 62.7% and as much as 191.8% of the increase in operating profit within each sector.

In the electrical and electronics sector, which had the largest increase in operating profit, the top three companies, representing only 1.9% of the total number of companies, accounted for 91.0% of the sector's total operating profit increase. The transportation/warehousing and non-metallic minerals sectors had top three company shares of 191.8% and 175.0%, respectively, meaning that excluding these companies, the operating profit in these sectors actually decreased.

Choo Kwang-ho, head of the Economic Policy Office at the Korea Economic Research Institute, said, "Although the performance of listed companies appears favorable, many companies have yet to recover from the COVID-19 shock," adding, "Active government policy support such as regulatory reform is required to enhance corporate vitality."

Meanwhile, the number of employees at listed companies last year was 1.08 million, down 11,000 from 2019. Notably, the number of employees in the chemical and distribution/face-to-face service sectors, which saw a decrease in operating profit, fell by 7.5% and 6.0%, respectively. At the same time, employee numbers also declined in sectors with increased operating profit such as software/internet/broadcasting services, telecommunications, and food and beverage.

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