Q3 Listed Companies' Operating Profit Forecasts Being Revised Downward... Q2 'Solid Performance Amid Concerns'

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] As the earnings announcement season for listed companies in the second quarter has passed its halfway point, the results so far are evaluated as relatively strong. The number of listed companies that posted 'earnings surprises' (operating profits significantly exceeding market expectations) and those that posted 'earnings shocks' (earnings disappointments) are roughly similar.

According to FnGuide, a financial information company, as of the 5th, 129 companies with earnings estimates from three or more securities firms have announced their second-quarter results. Among them, 70 companies, or 54.3%, reported operating profits better than market consensus, while 58 companies (45.0%) reported worse results. One company did not disclose operating profit when announcing its provisional second-quarter results.

Additionally, 39 companies posted earnings surprises with operating profits exceeding consensus by more than 10% (including reduced losses), while 35 companies posted earnings shocks with operating profits falling short of consensus by more than 10% (including turning to losses or expanding losses), showing a similar number of earnings surprise and earnings shock companies.

By company, POSCO Chemical recorded an operating profit of 55.2 billion KRW, the largest quarterly figure ever, thanks to increased profitability in its cathode material business. This was a surprise result, exceeding market expectations (32.0 billion KRW) by 72.6%.

Hanwha Solutions posted an operating profit of 277.8 billion KRW, surpassing the forecast (161.2 billion KRW) by 72.3%, thanks to a surprise performance in its solar power segment. Hyundai Motor and Kia also posted operating profits of 2.9798 trillion KRW and 2.2341 trillion KRW, respectively, despite various adversities such as parts supply disruptions and rising raw material costs, supported by improved mix (composition ratio by vehicle type) with more high-profit vehicles sold and favorable exchange rate effects. These figures exceeded market expectations by 30.5% and 22.0%, respectively.

On the other hand, some companies announced earnings shock-level second-quarter results due to increased operating costs, such as inability to pass on raw material price hikes to selling prices. Lotte Chemical was initially expected to post an operating profit of 26.0 billion KRW in the second quarter but recorded an operating loss of 21.4 billion KRW. Lotte Chemical cited rising raw material prices and worsening business conditions due to global demand slowdown as reasons for the loss.

Daewoo Engineering & Construction recorded an operating profit of 86.4 billion KRW, about 51.8% below the forecast (179.2 billion KRW), affected by rising raw material prices and increased outsourcing and labor costs leading to higher construction site cost ratios. Amorepacific posted an operating loss of 19.5 billion KRW, contrary to securities firms’ forecast of a profit (operating profit of 48.9 billion KRW), due to lockdowns in major Chinese cities caused by the spread of COVID-19.

Compared to concerns that many listed companies would post results below market expectations due to high inflation levels and economic slowdown forecasts, the results so far are considered relatively strong.

Minseok Kang, a researcher at Kyobo Securities, evaluated, "Despite concerns about earnings deterioration due to two months of lockdowns in Chinese cities, economic slowdown-induced demand decline, and increased costs such as raw materials and labor, the announced results were favorable."

Jungyeon Lee, a researcher at Meritz Securities, also said, "Considering the remaining economic uncertainties, the second-quarter results can be seen as a strong performance. Especially, the high ratio of operating profit to sales suggests that price pass-through of raw material cost increases was better than expected."

Dongchan Yeom, a researcher at Korea Investment & Securities, stated, "In Korea, there is a tendency for the proportion of companies missing expectations to increase in the latter part of the earnings season, so it is difficult to be optimistic about the results."

A concern is that earnings forecasts for the second half of this year and next year are being revised downward around the second-quarter earnings season.

Researcher Kang of Kyobo Securities said, "While the second-quarter earnings consensus has been slightly revised upward since the end of July due to better-than-expected results, the third and fourth-quarter earnings consensus is being revised downward amid concerns about economic slowdown in the second half."

Researcher Lee of Meritz Securities also said, "In the past two months, operating profit forecasts for this year and next year for the KOSPI have been revised downward by 3.2% and 7.1%, respectively. There is a strong trend of downward revisions in earnings forecasts around the earnings season."

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