The Shadow of Economic Recession Looming Over Semiconductor and IT Stocks

Samsung Electronics and SK Hynix Q3 Operating Profit
-20%, -34% Compared to Two Months Ago
Raw Material Price Decline, Metal and Mineral Stocks Profit Down

Hyundai and Kia Sales Volume Expected to Increase Despite Off-Season

[Asia Economy Reporter Minji Lee] As the Q2 earnings season is underway, it is expected that the shadow of economic recession will deepen for companies in the second half of the year. An analysis of 70 KOSPI-listed companies providing quarterly operating profit consensus estimates, commissioned from FnGuide, shows that the total operating profit estimate for these companies was revised upward from KRW 46.3604 trillion in March (Q1) to KRW 50.9643 trillion in June (Q2). However, the current estimate stands at KRW 45.8056 trillion, which is 10% and 2% lower than the Q1 and Q2 estimates respectively. This is also 1.4% lower than the profit level of KRW 46.4434 trillion recorded in Q3 last year.

The early tightening by major global central banks and the sharp rise in raw material prices have materialized as cost burdens for companies. China, which accounts for 25% of Korea’s export volume, implemented city lockdowns under its ‘Zero COVID’ policy, causing companies that have not been able to properly operate since the COVID-19 pandemic to suffer greater damage. In the second half, consumers feeling the burden of inflation are expected to tighten their wallets, suggesting that companies’ earnings may not be as strong as before.

Among 27 industries, those that need to lower their outlook further include semiconductors, IT home appliances, and equipment. Companies in these sectors include Samsung Electronics, SK Hynix, DB Hitek, Hanmi Semiconductor, and Haesung DS. The Q3 profit estimates for these five companies total KRW 17.2531 trillion, which is more than 23% lower than the Q2 forecast of KRW 22.4537 trillion. Considering that the Q1 estimate was only KRW 18.2907 trillion, it suggests that while earnings forecasts were expected to rise in the first half, the outlook has darkened within two months.

By stock, the largest profit adjustments were seen in the market leaders Samsung Electronics and SK Hynix. Samsung Electronics’ Q3 profit forecast is KRW 13.7895 trillion, down about 20.4% compared to two months ago. SK Hynix’s estimate was revised down by more than 34.6% to KRW 3.1699 trillion. The decline in earnings estimates reflects concerns over shrinking demand in the semiconductor sector. Choi Doyeon, a researcher at Shinhan Financial Investment, said, “Due to macro issues, set shipments are falling short of expectations, leading to increased inventory at downstream companies. These companies are lowering demand forecasts and rapidly reducing order volumes compared to their original plans to ease inventory burdens.” The memory market is expected to enter an upward cycle around the second half of next year.

Four companies sensitive to metal and mineral prices (Poongsan, POSCO Holdings, Hyundai Steel, Korea Zinc) were also affected by the decline in raw material prices that began last month. Their combined operating profit fell 11% compared to two months ago, totaling KRW 853.2 billion. In particular, Poongsan saw a more than 30% adjustment during the same period, with operating profit predicted at KRW 43.2 billion. This is due to copper prices adjusting from USD 10,000 in April to around USD 7,000 currently. With economic slowdown expected to reduce copper demand, poor performance is anticipated to continue.

Conversely, some industries showed prospects for earnings exceeding previous forecasts. The combined operating profit of Hyundai Motor and Kia, both in the automotive sector, was revised upward by about 26% to KRW 4.6371 trillion compared to two months ago. Despite Q3 being a traditional off-season, there is analysis that a base effect will appear compared to performance affected by semiconductor supply shortages in the second half of last year. Yoo Jiwoong, a researcher at Daol Investment & Securities, said, “Q3 sales for Hyundai and Kia are expected to be 1.01 million and 750,000 units respectively, which is an increase compared to the peak season in Q2. The increase in operating rates due to concentrated overtime work is also positive.”

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