Woori Financial Research Institute "SME Conditions Worsened Further After Endemic"

'Listed Small and Medium-sized Enterprises Business Condition Index' Newly Released
Declining as Endemic Phase Begins

Q4 Last Year 564 → Q1 This Year 547 → Q2 374

"The situation of domestically listed small and medium-sized enterprises (SMEs) has worsened since entering the endemic phase of COVID-19."

This is the key point of the report titled 'Analysis of the Performance of Listed SMEs in Q2 This Year and Its Implications,' released by Woori Financial Research Institute on the 19th. During the COVID-19 pandemic, industries such as construction and building materials, which saw increased order volumes, and healthcare, which experienced growth in self-test kit exports, led performance. However, in the first and second quarters of this year, IT sectors and gaming?both beneficiaries of social distancing measures?along with consumer goods related to the economy that faced soaring raw material prices, and healthcare, which had a brief growth spurt due to self-diagnostic kits, all declined. As a result, the overall sales growth rate and operating profit margin of SMEs fell compared to the previous quarter.

Woori Financial Research Institute introduced the Listed SME Business Condition Index (WSBCI) for the first time in this report. In addition to the existing stability and profitability evaluations, a growth indicator was newly included. The survey targeted 704 companies with average sales under 100 billion KRW during 2019?2020.

IT, Gaming, and Healthcare Hit Hard as COVID Ends

The business condition index, set at 100 in 2019, rapidly rose to 564 in Q4 2021. However, it has shown a continuous decline since this year, dropping to 547 in Q1 and 374 in Q2. The report explained, "As loans to SMEs increased, debt ratios rose, worsening stability, and the ability to generate sales declined, significantly deteriorating profitability indicators."

In particular, the gaming sector, which accounts for 30% of sales in the communication services industry, turned to a loss for the first time since 2019, causing operating profit margins to plummet. Consequently, the business condition index fell by 59 points from Q4 last year to Q2 this year (438→177). IT (321→221), healthcare (206→166), and consumer goods related to the economy (393→309) also saw declines. Industrial goods also sharply dropped (356→104); while this was partly due to the sluggish economy, the report analyzed that the base effect from losses in 2020 influenced the figures through Q2 this year.

Overall SME Weakness Expected Next Year

"Liquidity contraction and interest cost burdens due to rising interest rates are rapidly shrinking sentiment indicators. With increased uncertainty, most sectors are likely to experience overall weakness next year, except for consumer goods related to the economy and some industrial goods sectors," the report forecasted the business conditions for SMEs next year.

For industrial goods, it is expected that construction and building materials will perform poorly due to prolonged delays in project starts, and the machinery sector will see a sharp decline in order volumes. As remote work ends, demand for digital devices is decreasing and investments are delayed, leading to anticipated worsening performance for semiconductor and telecommunications equipment companies. Healthcare and communication services are also expected to continue poor performance as product demand sharply declines due to the endemic impact.

The report stated, "Even companies with good growth potential may face liquidity shortages due to rising market interest rates, so it is necessary to select relevant companies, identify their funding needs, and respond proactively."

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