COVID-19 Impact... 'Performance Polarization' Deepens Among SME Industries

Report on Performance Analysis of Small and Medium-sized Enterprises Before and After COVID-19
"Increased Funding Demand from SMEs... Financial Firms Need to Expand Sales Activities"

[Asia Economy Reporter Jin-ho Kim] Contrary to initial concerns that small and medium-sized enterprises (SMEs) would suffer significant damage due to the COVID-19 pandemic, their growth and profitability have greatly increased. However, some sectors such as semiconductors and equipment, healthcare, and gaming drove overall sales, while consumer discretionary sectors further contracted, intensifying the performance polarization among industries.

According to the report "Performance Analysis of Small and Medium-sized Enterprises Before and After COVID-19" released on the 5th by Woori Financial Management Research Institute, the revenue growth rate of non-financial listed SMEs after COVID-19 (Q3 2020 to Q2 this year) was 9.8%, significantly surpassing the pre-COVID-19 peak (2017, 2.7%) from 2017 to 2019. This represents the highest growth rate in the past decade.

Supported by revenue growth, the operating profit margin also improved significantly from 0.3% before COVID-19 to 2.1%. Annually, it recovered from losses in the previous two years to 1.0% last year. As of Q2 this year (2.1%), it exceeded the previous peak (2017, 1.3%).

Performance disparities among industries have rather widened. The average revenue growth rate of sectors with improved performance such as healthcare, gaming, and semiconductor equipment surged from 2.4% before COVID-19 to 33.8%. Conversely, underperforming sectors like construction and cosmetics deteriorated from 2.5% before COVID-19 to -12.1%.

Healthcare showed the highest revenue growth of 48.5%, driven by a surge in demand for K-bio. This was influenced by a significant increase in sales of companies developing in vitro diagnostic kits due to the COVID-19 pandemic. Increased leisure time at home also boosted the number of gamers, improving the performance of gaming companies.

On the other hand, cosmetics sales continued to decline due to a decrease in Chinese tourists since 2017, and COVID-19 dealt a direct blow. The revenue growth rate plummeted further from -5.0% before COVID-19 to -13.%. Construction sector revenue growth also worsened from 0.2% to -10.7% during the same period.

Seong Ji-young, Senior Researcher at Woori Financial Management Research Institute’s ESG and Corporate Finance Research Division, analyzed, "The widening performance gap between industries is mainly due to the rapid improvement in beneficiary sectors rather than the deepening deterioration in affected sectors." She also predicted that under the 'With COVID-19' phase, the performance of struggling sectors would recover quickly.

Financial stability also improved noticeably. The debt of listed SMEs increased by 6.7 trillion KRW from 21.3 trillion KRW in 2018 to 28 trillion KRW in Q2 last year, but operating profits increased at a greater rate. Accordingly, the interest coverage ratio improved from 0.03% to 1.17% during the same period.

Senior Researcher Seong emphasized, "Considering the continued improvement in SME performance, more proactive financial institution activities are necessary," urging preemptive responses to the expanding funding demand driven by technological and corporate structural improvements suitable for the With COVID-19 era.

Meanwhile, this report was prepared based on 681 non-financial listed SMEs with average sales under 100 billion KRW in 2018-2019 and that announced their performance last year.

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