Will KOSPI Listed Companies Lower Their Expectations Further in Q2?

63% of Listed Companies' Earnings Estimates
Expected to Underperform Compared to Early This Year
Prolonged Ukraine War
Increased Cost Burden Reduces Profit
Largest Gap in Electric and Electronics Sector

"Considering Interest Rate Hikes Due to Inflation
Operating Profit Estimates May Be Revised Downward"
Transportation, Raw Materials, and Finance Sectors
Expected to See Upward Revisions in Earnings Estimates

[Asia Economy Reporters Junho Hwang and Minji Lee] Concerns have grown that the performance of domestic companies this year will fall short of early-year expectations. Looking at the Q2 operating profit forecasts alone, more than half of the KOSPI-listed companies have significantly lowered their estimates compared to the beginning of the year. As earnings uncertainty rises, domestic investors appear to be accumulating cash and adopting a wait-and-see stance.

◆63% of KOSPI-listed Companies Lower Q2 Earnings Expectations

According to FnGuide, a financial information provider, among 72 KOSPI-listed companies with earnings estimates from three or more securities firms for Q2, 46 companies (63%) have lowered their operating profit forecasts compared to early this year. This reflects the judgment that rising market interest rates and prolonged Russia-Ukraine conflict have increased raw material costs, potentially reducing companies' expected earnings.

This trend was observed across most industries. The sector with the largest gap compared to early-year estimates was the electrical and electronics industry. The biggest declines were seen in secondary battery material companies Solus Advanced Materials (-88%) and SK IE Technology (-65%). With ongoing price drops due to production disruptions in European electric vehicles, rising raw material and electricity costs are expected to drag down Q2 earnings.

The outlook for the automotive parts industry was also somewhat bleak. Hanon Systems, Korea Technology, and Hyundai Mobis saw their profit forecasts adjusted downward by approximately 40%, 30%, and 12%, respectively. The spread of semiconductor shortages has led to reduced vehicle production, which is expected to significantly lower the operating rates of parts suppliers. Experts note that Hanon Systems, which has the largest European market share among domestic parts companies, will depend heavily on the recovery of the European market. Additionally, game companies such as Krafton (-28%), NCSoft (-15%), and Netmarble (-8%), expected to see user declines due to reopening, as well as platform companies like Kakao (-31%) and NAVER (-8.9%), also face anticipated earnings downturns.

Yeom Dong-chan, a researcher at Korea Investment & Securities, said, "While Q1 earnings estimates are currently not bad, considering the interest rate hikes due to inflation, annual operating profit estimates are likely to be revised downward. On an annual basis, KOSPI companies' operating profits are estimated to decrease by 20% compared to the end of last month."

On the other hand, sectors with upward revisions in earnings estimates, though rare, included transportation, raw materials, and financial industries. Korean Air showed the largest increase in estimates (77%) among listed companies, reflecting the rapid recovery in international passenger demand. Among raw material companies, Poongsan Corporation (16%) and Korea Zinc (16%) are expected to show double-digit growth rates, buoyed by expectations of price increases. Among commercial banks, JB Financial Group (12%), Industrial Bank of Korea (11%), KB Financial Group (3.5%), and Hana Financial Group (2.9%) are projected to achieve stable earnings thanks to the rise in net interest margins (NIM).

◆Increase in Market Waiting Funds... More Investors Taking a Wait-and-See Approach

With the end of the liquidity-driven market and lowered earnings expectations for listed companies, waiting funds in the stock market have increased significantly. As it became difficult to gauge market direction based on listed companies' earnings during the market downturn, more investors have shifted to a wait-and-see stance.

Investor deposits in the stock market rose sharply from 60.4011 trillion KRW on the 20th of this month to 65.5736 trillion KRW on the 26th, just four trading days later. CMA balances also increased from 62.7944 trillion KRW to 69.3734 trillion KRW. Short-term funds such as MMFs (Money Market Funds) are also on the rise. The total net assets of short-term financial funds in Q1 this year reached 153.8 trillion KRW, marking the highest growth rate (13.1%) compared to the previous quarter. MMFs increased from 153.012 trillion KRW at the beginning of this month to 163.2558 trillion KRW on the 26th.

Han Ji-young, a researcher at Kiwoom Securities, said, "A characteristic of this year's Q1 earnings season is that neither value stocks nor growth stocks have a clear advantage in style. This suggests that the market is placing more premium on the element of future earnings growth (or earnings quality) itself." She added, "Going forward, buying interest in the market will focus only on companies that present positive earnings forecasts for Q2 or Q3."

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