COVID-19 Windfall... SME Sales Growth Rate Hits 10-Year High (Comprehensive)

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"

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[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 contracted further, 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%. On an annual basis, 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%).

The performance gap between industries has 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 worsened from 2.5% before COVID-19 to -12.1%.

Healthcare showed the highest revenue growth rate 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. The gaming sector also saw improved performance as the number of users increased with more leisure time spent at home.

Semiconductor equipment also entered a boom phase again as demand for semiconductors for PCs and servers surged due to the expansion of remote work and education triggered by COVID-19. The revenue growth rate clearly rose from -5.0% before COVID-19 to 12.0%.

On the other hand, the cosmetics sector, which had been struggling with declining sales due to a decrease in Chinese tourists since 2017, was hit hard by COVID-19. The revenue growth rate plummeted further from -5.0% before COVID-19 to -13.%. The construction sector’s revenue growth rate 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 the performance of struggling sectors would recover quickly once the 'With COVID-19' era begins.

Financial stability also improved noticeably. The debt of listed SMEs increased by 6.7 trillion won from 21.3 trillion won in 2018 to 28 trillion won 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 sales activities by financial institutions 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 won in 2018-2019 and that announced their performance last year.

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