The Worst 'Earnings Shock'... Securities Firms Deeply Engaged in Finding Stocks with Improved Earnings

Q1 Corporate Operating Profit Lowest Since 2009
Approach by Focusing on Stocks with Positive Profit Momentum

As the first quarter earnings season has begun, the worst earnings shock is expected, drawing attention to stocks with improving earnings. Securities firms expressed concerns that this earnings season could be the worst off-season with frequent shocks and heightened uncertainty. Accordingly, the prevailing opinion is that investment portfolios should be centered on stocks with earnings improvements.

According to financial information provider FnGuide, the consensus for combined sales (excluding financial sectors) and operating profit for the first quarter of this year is projected at KRW 569 trillion and KRW 27.9 trillion, respectively. This data covers 292 companies for which consensus data exists. Sales have improved for nine consecutive quarters (year-over-year), but operating profit is expected to be the worst first-quarter performance since 2009. The semiconductor sector's shift to losses had a significant impact. Excluding semiconductors, operating profit is forecasted to decline by 14.3%.

Famous analyst from Mirae Asset Securities said, "It is necessary to lower expectations for recovery in the second half," adding, "Rather than a trend-based rise in the index, a strategy focusing on investing in companies with positive earnings momentum will be advantageous." Kim Yong-gu, a researcher at Samsung Securities, also noted, "As the uncertainty around first-quarter earnings maximizes, investors' skepticism and scrutiny of earnings variables are likely to intensify more than in any other quarter," and added, "Companies that dispel investors' doubts and prove expectations are highly likely to be met with explosive stock price reactions in the market."

Large-cap stocks with upward revisions in earnings per share (EPS) compared to a month ago include ▲LG Energy Solution (1.6%) and Samsung SDI (2.4%) in the secondary battery sector, and ▲Hyundai Motor (1.2%) and Kia (1.3%) in the automobile sector. LG Energy Solution's expected EPS growth rate for the second quarter is projected at 14.3%, with annual EPS also expected to increase by 0.8% this year. Hyundai Motor and Kia are also predicted to have second-quarter EPS growth rates of 2.5% and 3.6%, respectively. The stock with the highest expected EPS growth rate for the first quarter is LG Electronics (36.0%). Hanwha Aerospace (27.8%), Kakao Pay (15.1%), Samsung Electro-Mechanics (13.6%), and Jeju Air (11.1%) are also estimated to show double-digit growth rates.

Researcher Kwak Byung-yeol from Leading Investment & Securities said, "Recently, the downward revision of 2023 annual earnings has stopped and entered a sideways phase. If it is confirmed through the first-quarter earnings season that earnings expectations have sufficiently lowered, stock prices are expected to secure downside rigidity and attempt to rise," adding, "Earnings improvement stocks leading the market-wide earnings forecast bottoming process will justify high preference through the first-quarter earnings season."

Over the past month, 69 companies have been identified by three or more securities research centers as likely to have higher first-quarter operating profit estimates. The most representative is Hyosung TNC. Its operating profit estimate a month ago was around KRW 9.2 billion, but it has now surged to KRW 42.1 billion, a 358% increase. The operating profit forecast for ST Pharm also rose by 18.6%. A month ago, the operating profit estimate was KRW 3 billion, but it is now estimated to reach KRW 3.6 billion.

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