[Practical Finance] This Year’s Industry-by-Industry Contrasts... Portfolio Adjustment Essential

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the global stock markets continue to decline, advice is emerging that investors need to respond by constructing more precise portfolios. A differentiated approach by industry is necessary. While the mobile phone parts and shipbuilding sectors are expected to show performance improvements this year, the travel and leisure sectors, which had relied on expectations of normalization after COVID-19, are unlikely to see a clear recovery in the near term.

◆The heyday of mobile phone cameras is approaching again= First, the mobile phone parts sector is expected to benefit this year. In particular, companies in the camera module field are projected to make a leap forward. It is analyzed that the high growth seen during 2017-2019, when smartphones introduced 'multi-cameras,' will be reproduced.

Park Kang-ho, a researcher at Hana Financial Investment, explained, "Differentiating factors such as the quantitative growth of Samsung Electronics, which holds the world's number one smartphone market share, and Apple's camera enhancements are expanding beyond the structural growth of the smartphone market." He added, "Additionally, the increase in camera supply and revenue recognition for autonomous driving and electric vehicles, which are considered new growth areas, will be grounds for the re-evaluation and upward valuation of the camera module industry."

Samsung Electronics' smartphone sales this year are estimated to reach 312 million units, a 13.3% increase compared to the previous year. This surpasses the expected growth rates of Apple and Chinese smartphone manufacturers. Apple is also expected to continue strengthening camera specifications. The main camera resolution, which had been maintained at 12 megapixels since 2015, is anticipated to be upgraded to 48 megapixels. Next year, Apple is expected to adopt a folded camera capable of high-magnification zoom. Accordingly, Samsung Electro-Mechanics and MCNEX are expected to benefit from Samsung Electronics, while LG Innotek is projected to benefit from Apple.

◆Signs of growth in the shipbuilding industry for the first time in 10 years= The atmosphere in the shipbuilding industry has changed. The need for workforce expansion has been mentioned for the first time in about 10 years. Approximately 8,000 additional workers are needed by the end of the year. Some companies are emphasizing production efficiency. This is because last year, the order performance of four major domestic shipbuilders?Hyundai Mipo Dockyard, Samsung Heavy Industries, Hyundai Heavy Industries, and Daewoo Shipbuilding & Marine Engineering?is estimated to have doubled compared to the previous year, reaching $49.1 billion.

Despite the expanded production plans, the order backlog is expected to increase this year. Orders exceeding the planned production volume, amounting to $35.5 billion, are anticipated. Hyundai Heavy Industries Group has set a shipbuilding and offshore sector order target of $17.6 billion this year. Although this is about 23% smaller than last year, it is considered sufficient to continue expanding its scale. Choi Jin-myung, a researcher at NH Investment & Securities, predicted, "Limited ship production capacity will lead to future ship price increases, which will help improve the profitability of shipbuilders."

However, there are suggestions to lower expectations for the fourth-quarter earnings announcement last year. In the case of Hyundai Heavy Industries Group, there is a high possibility that potential costs will be reflected in the earnings due to the final loss in the ordinary wage lawsuit dispute with the labor union in December last year. Samsung Heavy Industries and others are also expected to reflect estimated costs related to the undelivered drilling rig they hold. This is because the potential sale price must be lowered, and maintenance costs will be incurred until the sale.

◆Overly high expectations for the travel sector= During the COVID-19 period, travel agencies significantly reduced fixed costs through ▲ workforce reductions and ▲ liquidation of subsidiaries. Additionally, inflation is raising the future expected prices of travel products. Due to these recovery expectations, Modetour's stock price has recently surged. From the 28th of last month to the 9th of this month, it rose more than 20%. During the same period, the KOSDAQ index only increased by 7%.

However, there are warnings against indiscriminate optimism. Lee Hyo-jin, a researcher at Meritz Securities, criticized, "Despite the travel market boom in 2018-2019, the market is raising expectations forgetting that the poor performance of package (PKG) products was the cause of travel agencies' stock price weakness." She added, "Currently, travel agencies' stock prices are at levels possible only under assumptions of oligopolization by top operators, demand concentration on PKG, and no shareholder dilution."

The 'cash'?the financial stamina to endure the COVID-19 situation?is also nearing depletion. Most travel agencies, which have been surviving by disposing of assets, are expected to run out of funds within this year. In particular, Hana Tour's cash burn rate is considered prominent. The researcher explained, "Considering the costs to endure until the recovery period and the operating funds needed to secure airline tickets upon business resumption, the current cash situation is not easy."

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