"At the Bottom, Earnings Stocks Are Ultimately Trustworthy"…Selective Investment in Companies with Upwardly Revised Operating Profits

KOSPI Korean Air, Hyundai Heavy Industries · KOSDAQ Simtek, Seegene Spotlighted

[Asia Economy Reporters Lee Seon-ae and Lee Myung-hwan] The stock market, which sharply collapsed due to panic selling, has struggled to achieve a satisfactory rebound. Although volatility will bring fluctuations, experts advise focusing on the rebound potential of earnings-driven stocks at the market bottom. This means selective investment should be made in individual companies with earnings improvement momentum amid forecasts of increased annual operating profit estimates for KOSPI and KOSDAQ-listed companies.

According to FnGuide, a financial information provider, as of the 9th, the 2022 sales of 270 KOSPI and KOSDAQ-listed companies with consensus from three or more securities firms totaled KRW 2,348.9687 trillion, and operating profit was KRW 242.7756 trillion. This represents an 11.5% increase compared to 2021 sales (KRW 2,106.9423 trillion) and operating profit (KRW 217.7638 trillion), respectively.

Accordingly, the securities industry recommends paying attention to stocks with upward revisions in first-quarter and annual operating profit estimates this year. As of April 4, according to FnGuide, among KOSPI-listed companies, Korean Air showed the largest increase in first-quarter operating profit consensus. One month ago, the first-quarter operating profit was forecasted at KRW 313 billion, but the current estimate has risen to KRW 496.8 billion, marking a 58.7% increase in one month.

Following Korean Air were shipbuilding and shipping stocks. HMM recorded the second-highest increase at 46.1%. HMM’s operating profit forecast rose from KRW 1.1734 trillion one month ago to KRW 2.5033 trillion currently. Hyundai Mipo Dockyard showed a 35.6% increase (KRW 11.9 billion → KRW 16.1 billion), and Korea Shipbuilding & Offshore Engineering rose 17.9% (KRW 32.8 billion → KRW 38.7 billion). Hyundai Glovis (9.5%) was also among the companies with increased operating profit compared to one month ago.

Other companies with increased first-quarter operating profit forecasts over the past month included Samsung Engineering (17.9%), LG Innotek (16.8%), Haesung DS (10.4%), SK Hynix (8.3%), and Shinsegae International (7.9%).

In the KOSDAQ market, only four companies recorded meaningful increases in operating profit forecasts compared to one month ago. Simtek had the highest increase at 6.7% (KRW 45.3 billion → KRW 48.3 billion), followed by InnoX Advanced Materials (6.3%), Seoul Semiconductor (6.1%), and CJ Freshway (3.3%).

Looking at annual operating profit forecasts, shipbuilding and shipping-related stocks also showed high growth rates. Hyundai Heavy Industries had the largest increase in forecast over one month. Its annual operating profit estimate rose 33.2% from KRW 153.9 billion to KRW 204.9 billion. HSD Engine followed with a 25.3% increase (KRW 16.6 billion → KRW 20.8 billion). Korea Shipbuilding & Offshore Engineering (22.1%), HMM (21.3%), and LX International (9.3%) also saw upward revisions in operating profit forecasts.

Korean Air, which had the highest increase in first-quarter operating profit forecasts, ranked third in annual terms with a 253.7% increase (KRW 1.0791 trillion → KRW 1.3349 trillion). Other top companies with increased operating profits included SK Hynix (23.1%), SD Biosensor (21.3%), SK Networks (10.8%), and Samsung Engineering (7.6%).

In the KOSDAQ market, Seegene showed the highest increase in operating profit at 47.7%. Seegene’s annual operating profit estimate rose from KRW 301.9 billion one month ago to KRW 446 billion as of April 4. Following were Intellian Technologies (17.7%), Paradise (16.0%), and Modetour (12.1%).

Laboratory Researcher Roh Dong-gil of Shinhan Investment Corp. said, "Looking at the changes in operating profit consensus by industry over the past month, earnings estimates are being revised upward mainly in industrials and IT sectors, and the semiconductor earnings consensus is also rising significantly. In a phase of increased index volatility, a buying strategy based on fundamentals will be effective."

Researcher Lee Woong-chan of Hi Investment & Securities emphasized, "During periods of real interest rate hikes, portfolios should be composed of stocks with low asset duration (where future expected earnings are near), which have good debt ratios, high profit margins, and low earnings volatility."

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