"Lower Corporate Earnings Expectations"... Flood of Downgrade Reports from Securities Firms

[Asia Economy Reporter Ji Yeon-jin] Since the beginning of this month, securities firms have been issuing reports recommending 'cautious investment.' Following the 'Donghak Ant Movement' last year, the market experienced a bull run lasting over a year, leading to a surge in the valuations of many companies. However, a flood of downgraded investment opinions has emerged for stocks expected to post operating results below market expectations.

On the 25th, Daishin Securities maintained a neutral investment opinion on low-cost carriers (LCCs) in its report. Yang Ji-hwan, a researcher at Daishin Securities, stated, "The government aims to achieve herd immunity by the fourth quarter of this year through early COVID-19 vaccine supply, which has improved investment sentiment toward airlines. However, we recommend a more cautious approach to investing in low-cost carriers." The combined operating loss of Jin Air and Jeju Air in the first quarter reached 146.1 billion KRW on a separate basis, falling short of market expectations. It is analyzed that the operating loss widened due to a significant increase in domestic flights to reduce fixed costs and raise cash.

Jin Air and Jeju Air's stock prices plunged sharply after the COVID-19 outbreak last year but have been on the rise since November of the same year, reflecting vaccine optimism. Compared to the beginning of the year, Jin Air's stock price rose by 51.85%, and Jeju Air's by 29.70%, recovering to pre-COVID levels. The government plans to inject 200 billion KRW in policy funds into LCCs, likely in the form of new capital securities such as perpetual convertible bonds, making large-scale capital expansion inevitable, which is expected to dilute shareholder value.

Earlier, on the 21st, Hi Investment & Securities lowered the target prices of Samsung Electronics and SK Hynix to 92,000 KRW and 166,000 KRW, respectively, citing expected slowdowns in the semiconductor industry and earnings momentum. Shinhan Financial Investment also lowered Samsung Electronics' target price from 120,000 KRW to 105,000 KRW, and Hana Financial Investment reduced it from 111,000 KRW to 101,000 KRW. Song Myung-seop, a researcher at Hi Investment & Securities, said, "Considering the significant price adjustment of Samsung Electronics and the expected substantial earnings improvement in Q2 and Q3 this year, we maintain a buy rating." However, he added, "It is necessary to monitor the situation rather than aggressively buying upon price recovery."

KB Securities also changed its investment opinion on Meritz Fire & Marine Insurance to 'sell' this month and lowered the target price by 20.9% to 17,000 KRW. This reflects Meritz Fire & Marine Insurance's mid-term capital policy announced on the 14th, which indicated maintaining a dividend payout ratio of 10% of separate net income, signaling a decline in dividend payout ratio. Kang Seung-geon, a researcher at KB Securities, said, "The lack of explanation regarding the scale and timing of share buybacks or cancellations raises concerns and uncertainties about shareholder returns. Continuous decline in return on equity (ROE) is inevitable, leading to a downward revision of the target price."

Lotte Shopping's weak first-quarter performance dragged down its target price. During this period, consolidated sales amounted to 3.88 trillion KRW, down 4.8% year-on-year, and operating profit increased by 18.5% to 61.8 billion KRW but fell significantly short of market expectations. Park Jong-ryeol, a researcher at Hyundai Motor Securities, stated, "It seems necessary to lower expectations for performance recovery compared to initial forecasts." He added, "Considering the operating results below projections, we lower the annual earnings forecasts for this year and next year and revise the target price down to 153,000 KRW."

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