[MarketING] Growing Earnings Concerns Amid Samsung Electronics Earnings Shock

Mixed Market Start Amid Samsung Electronics Earnings Shock
Steep Downgrade in Corporate Earnings for Q4 Last Year

[Asia Economy Reporter Song Hwajeong] Samsung Electronics has released earnings far below expectations, raising concerns about corporate performance. With a poor fourth-quarter performance forecast and continuously lowered earnings estimates, stock market volatility is also expected to increase.

Mixed Market Reaction to Samsung Electronics' Earnings Shock

As of 10:10 a.m. on the 6th, the KOSPI index rose 8.51 points (0.38%) from the previous day to 2273.16. The KOSDAQ increased by 0.32 points (0.05%) to 680.24. Both indices started lower, fluctuated, and are now moving in a slightly positive range. Samsung Electronics shares traded up 0.17% at 58,300 KRW. Although the stock rose more than 1% in early trading, the gains significantly narrowed.

Samsung Electronics announced its preliminary fourth-quarter results before the market opened that day. The company reported consolidated sales of 70 trillion KRW and operating profit of 4.3 trillion KRW for Q4 last year. Sales decreased by 8.58% year-on-year, and operating profit dropped by 69%. This marked a significant earnings shock, falling far short of market expectations. Although recent earnings forecasts had been revised downward to around 5 trillion KRW by securities firms, the actual results were even lower.

Foreign investors appear to be supporting Samsung Electronics' downside. On the day, foreigners net purchased 48.9 billion KRW in the KOSPI and bought 23.6 billion KRW worth of Samsung Electronics shares, making it the second most purchased KOSPI stock after KB Financial Group. This is interpreted as betting on the possibility of supply policy adjustments rather than the earnings shock itself.

Wi Minbok, a researcher at Daishin Securities, said, "There is a gap of more than 1 trillion KRW compared to the operating profit market consensus of 6.6 trillion KRW, which could lead to disappointment-driven selling." He added, "Market expectations for investment cuts seem excessive, but considering that despite the industry's best cost competitiveness, losses started with NAND in Q4, followed by expected losses in the DS division in Q1 and DRAM in Q2 this year, Samsung Electronics is likely to participate in supply adjustments from the second half."

The Earnings Season Begins: Strategies for Response

With Samsung Electronics' earnings announcement, the curtain has risen on the Q4 earnings season. Starting with a significant earnings shock far below market expectations, concerns about poor performance are expected to intensify. In particular, Q4 earnings are being revised downward at a steeper rate than average.

According to NH Investment & Securities, over the past two weeks, the Q4 KOSPI earnings consensus has been revised downward, with operating profit adjusted from 41.9 trillion KRW to 39.7 trillion KRW, a 5.1% decrease, and net profit lowered from 29 trillion KRW to 27 trillion KRW, a 3.5% reduction.

Kim Younghwan, a researcher at NH Investment & Securities, explained, "On average, consensus tends to decline ahead of Q4 earnings announcements, but this year the downward revision is steeper than the five-year average. Generally, Q4 earnings often fall short of forecasts due to one-time expenses, limiting the market impact of earnings releases. However, this earnings season is problematic because it coincides with heightened recession concerns." He added, "It is necessary to focus on companies showing stable sales growth, continuous cost reductions, high investment ratios, and holding a healthy level of cash."

Lee Jungyeon, a researcher at Meritz Securities, said, "With U.S. policy interest rates expected to rise in the first half of this year and recession concerns potentially leading to weak consumption, it is difficult to expect a broad market earnings turnaround in the near term. Given the challenging outlook for earnings improvement in the first half, attention should be paid to stocks that are advantageous in terms of profitability and may attract foreign demand through upward revisions of earnings forecasts."

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