[Q2 Stock AI] ① Earnings and Stock Prices Bottomed Out? ... Which Stocks Are Surprises?

Promising Chinese Reopening Stocks: Automotive, Food, Semiconductor, and Electronics Sectors
Focus on Lotte Chemical, Poongsan, Clio, Orion, Nongshim, Hyundai Motor, Kia, and More

As the first-quarter earnings announcements of listed companies conclude, there is an assessment that both earnings and stock prices have bottomed out. Amid this, market attention is focused on which leading stocks will drive the second quarter. Stocks that have either hit the bottom in operating profit or are expected to deliver a 'surprise' due to industry improvement are highly likely to be the protagonists of the second quarter. With the stock market rising unexpectedly sharply in the first quarter, increasing the burden of further gains, the process of distinguishing the quality of individual stocks also seems to be in full swing.

A Total of 37 Stocks Have Had Their Investment Ratings Upgraded This Year

According to financial information provider FnGuide on the 24th, a total of 37 stocks have had their investment ratings upgraded as of the 20th of this year. Among the stocks with upgraded or maintained investment ratings, 29 stocks were found to have their target prices raised by three or more institutions.

President Yoon Suk-yeol visited the Hyundai Motor Ulsan Plant export loading dock on the 9th of last month and, guided by Chung Eui-sun, Chairman of Hyundai Motor Group, headed towards the ship transporting export vehicles. Photo by the Presidential Office Press Photographers Group [Image source=Yonhap News]

The background for the revaluation of listed companies' valuations (corporate value) is attributed to the first-quarter earnings. The first-quarter earnings of listed companies are considered a barometer of annual performance. This is because stock prices and earnings trends can be gauged based on first-quarter results. Even though Samsung Electronics recorded the worst earnings shock in the first quarter, securities firms raised their target prices because there is a perception that both stock prices and earnings have reached the bottom.

By industry, stocks related to China's reopening (resumption of economic activities), automobiles, food, semiconductors, and electrical electronics were identified as candidates for earnings surprises. China's reopening-related stocks are representative examples, including Lotte Chemical, Hotel Shilla, and Poongsan. Yoojin Jeon, a researcher at Hi Investment & Securities, said, "Cautiously, it is judged that the market has moved away from the very bottom," adding, "Since positive signals related to Chinese demand continue to emerge, a full-scale demand recovery can be expected from the second quarter."

China's Economic Recovery vs. Korea-China Relations Tension

Duty-free shops and cosmetics stocks, expected to improve earnings due to increased Chinese consumption and Chinese tourists, are also receiving attention. Sanghoon Jo, a researcher at Shinhan Investment Corp., said about Hotel Shilla, "A rapid recovery in duty-free sales is expected due to the increase in Chinese visitors to Korea," explaining, "In particular, the commission fees related to 'Daigou' (personal shoppers) are in the process of normalization, and from the second quarter, the number of individual tourists who do not require commission fees is expected to increase, leading to a sharp recovery in profitability."

However, as an unexpected variable of tension in Korea-China relations has caused a correction in reopening stocks, short-term deterioration in investment sentiment is inevitable. Related stocks fell together on the 21st. Amorepacific dropped 8.53%, LG Household & Health Care 8.13%, Cosmax 8.06%, Korea Kolmar 3.95%, Hotel Shilla 7.95%, and Lotte Tour Development 6.66%. Seokhwan Kim, a researcher at Mirae Asset Securities, said, "Concerns over the deterioration of Korea-China relations seem to have affected the contraction of investment sentiment," adding, "The lack of additional announcements regarding countries eligible for group tours by China ahead of the May Labor Day holiday is also a negative factor."

There is also an opinion that political risks are short-term negatives, and since China's economic recovery trend is clear, a mid- to long-term approach is necessary. Jonggyu Jeon, a researcher at Samsung Securities, said, "We need to observe the atmosphere after the Korea-US summit, but political risks may enter a lull," explaining, "It is also important to note that the Chinese leadership is focusing on economic recovery."

Attention should also be paid to stocks whose earnings have improved compared to the same period last year. Clio, Orion, and Nongshim are candidates. Meritz Securities raised Orion's target price by 19.2% to 155,000 KRW. SK Securities also raised its target price from 145,000 KRW to 192,000 KRW, continuing the trend of securities firms raising target prices. In fact, Orion succeeded in increasing profits for two consecutive months. First-quarter sales were 665.8 billion KRW, up 1.2% year-on-year, and operating profit was 100.5 billion KRW, down 5.3%, meeting consensus. Following the continuous target price upgrades by securities firms, Orion's stock price has also been on an upward trend, closing higher for eight consecutive trading days since the 11th.

Automobile stocks such as Hyundai Motor and Kia are also racing ahead on earnings expectations. Despite export sluggishness due to semiconductor downturns, automobile exports have been favorable. According to the Korea Customs Service, exports from the 1st to the 10th of this month amounted to 14.027 billion USD, down 8.6% year-on-year, but automobile and automobile parts exports increased by 64.2% and 6.7%, respectively. Additionally, large-scale electric vehicle investment plans have emerged, stimulating investment sentiment.

The securities industry expects Hyundai Motor's first-quarter operating profit this year to exceed market consensus, ranging from 2.9706 trillion KRW to 3.025 trillion KRW, a 54-56% increase year-on-year. Although Hyundai Motor and Kia were excluded from the US electric vehicle subsidy list, the dominant sentiment in the securities industry is that this will be a short-term negative. Ja-il Lee, a researcher at Eugene Investment & Securities, analyzed, "Hyundai Motor will achieve record-high operating profit in the first quarter," explaining, "This is due to strong domestic and export sales, favorable sales in North America and Europe, and the effect of increased margin from rising average selling prices (ASP)."

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