Excluding Samsung Electronics and SK Hynix, both sales and operating profit increased...

Analysis of Q4 Estimates for Top 100 Companies by Market Capitalization
Revenue Up 17% Year-on-Year, Operating Profit Down 27%
Excluding Samsung Electronics and SK Hynix, Both Revenue and Operating Profit Expected to Increase

[Asia Economy Reporter Hyungsoo Park] Amid growing warnings of domestic and international economic recessions next year, the Q4 earnings outlook for the top 100 listed companies in Korea by market capitalization (as of the closing price on December 12) is underwhelming. Although total sales are expected to increase compared to the same period last year, operating profits have sharply declined. Overall, the triple challenges of high interest rates, high exchange rates, and high inflation have taken their toll, with the struggles of Samsung Electronics and SK Hynix delivering the final blow. As a small open economy, Korea relies heavily on exports, and the semiconductor industry's downturn, the main driver of exports, had a significant impact. While sectors such as secondary batteries and shipbuilding performed relatively well despite numerous adverse factors, they were insufficient to offset the poor performance of Samsung Electronics and SK Hynix.

According to financial information provider FnGuide on the 22nd, the estimated Q4 sales of the top 100 listed companies by market capitalization in Korea are expected to reach KRW 554.7708 trillion, a 17% increase compared to the same period last year. However, the estimated Q4 operating profit is projected at KRW 25.8323 trillion, a 27% decrease from last year's KRW 35.3383 trillion.

The performance of the remaining 98 listed companies, excluding Samsung Electronics and SK Hynix, was not bad. Sales increased by 22%, and operating profit rose by 7%. This clearly demonstrates how significant the semiconductor industry is to the Korean economy. Jaewoon Cho, a researcher at Daishin Securities, explained, "Domestic corporate earnings are highly correlated with exports, and export volume as of November decreased by 13.6% compared to the same period last year." He added, "The downward revision of earnings estimates for Korean companies is larger compared to major countries worldwide, due to Korea's export-dependent economic structure and the large proportion of the semiconductor industry."

Among the top 100 companies by market capitalization, 75 companies are expected to see an increase in Q4 sales compared to Q4 last year. Hyundai Motor and Kia are projected to increase sales by 23% and 39%, respectively. Sales of secondary battery and materials companies are also steadily rising. Notable sales growth rates include L&F (267%), EcoPro BM (261%), POSCO Chemical (92%), LG Energy Solution (86%), Samsung SDI (57%), SK Innovation (49%), and LG Chem (37%).

75 of Top 100 Companies Expected to Increase Sales, 69 to Increase Operating Profit

Among the top 100 listed companies, 31 are expected to see a decrease in operating profit compared to the same period last year. Of these, 25 companies remain profitable but with reduced profit margins, while 5 companies have turned to losses. The remaining company, Korea Electric Power Corporation (KEPCO), is forecasted by the securities industry to see its operating loss widen from KRW 4.7 trillion in Q4 last year to KRW 9.3 trillion in Q4 this year.

The company with the greatest negative impact on the total operating profit of all listed companies is Samsung Electronics. Samsung Electronics recorded an operating profit of KRW 13.9 trillion in Q4 last year, but its operating profit forecast has been steadily lowered. The current average estimate remains around KRW 8 trillion, but foreign securities firms have been revising their forecasts downward. On the 19th, Goldman Sachs lowered its Q4 operating profit estimate for Samsung Electronics to KRW 5.8 trillion from the previous KRW 7.8 trillion, a 25.6% cut. The semiconductor division's expected operating profit was reduced from KRW 2.6 trillion to KRW 1.5 trillion. Among domestic securities firms, Samsung Securities, DB Financial Investment, and Eugene Investment & Securities also forecast Samsung Electronics' Q4 operating profit to fall short of KRW 7 trillion.

The situation for SK Hynix is even more severe. While it recorded an operating profit exceeding KRW 4 trillion in Q4 last year, it is expected to post an operating loss exceeding KRW 600 billion in Q4 this year. Some securities firms predict SK Hynix's operating loss could exceed KRW 1 trillion.

Leading domestic export companies Samsung Electronics and SK Hynix have not escaped the global adverse effects of high interest rates and high inflation. Although they benefited somewhat from the high exchange rate, the impact of high inflation and high interest rates reduced real income, causing consumers to tighten their wallets. Sales of information and communication technology (ICT) products such as smartphones, PCs, and home appliances declined, leading to reduced semiconductor demand. Jongbin Lee, a researcher at Meritz Securities, said, "The semiconductor companies' poor performance was more due to price declines than volume," and predicted, "The semiconductor industry bottom is expected between the end of Q1 and Q2 next year." He forecasted that if semiconductor prices rebound, the earnings of the two companies will improve.

Unlike them, the vehicle semiconductor supply shortage that began last year somewhat eased in the second half of this year, benefiting Hyundai Motor Group's sales. Hyundai Motor Group has also enhanced product competitiveness and successfully introduced the dedicated electric vehicle platform (E-GMP), raising brand awareness. The rapid growth of the electric vehicle market and securing competitiveness compared to Japanese automakers, their competitors, are also cited as growth factors.

Domestic secondary battery companies with global competitiveness are rapidly expanding production capacity to meet secondary battery demand. As a result, sales of domestic secondary battery material companies are also increasing rapidly.

Promising Outlook for Nuclear and Renewable Energy Sectors Next Year

Sales of Korea Shipbuilding & Offshore Engineering and Hyundai Heavy Industries have also increased. Although global new ship orders through November this year decreased by about 40% compared to last year, the market share of domestic shipbuilders rose from 33.8% as of November last year to 40.3% this year. Domestic shipbuilders secured orders for 118 out of 155 large liquefied natural gas (LNG) carriers ordered through November this year. Hongkyun Kim, a researcher at DB Financial Investment, explained, "The delivery schedule for ships at major domestic shipyards is already set through 2026," adding, "Based on sufficient order backlogs, they are also pursuing profitability improvement through selective order acceptance."

What about the earnings of major listed companies next year? While domestic and international economic recessions are expected to continue, sectors such as nuclear power and renewable energy, which the government plans to nurture, are expected to grow. Taedong Oh, head of research at NH Investment & Securities, said, "The nuclear and renewable energy sectors are expected to grow as the government provides policy support," and added, "The semiconductor industry is also expected to complete inventory adjustments, hit bottom, and start recovering."

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