'M&A Drought' Samsung Electronics Sees Profitability Indicators Plunge to One-Quarter of Two Years Ago This Year

Analysis of ROA for Top 50 Companies
Samsung Electronics 2021 9.9% → Estimated 2.6% This Year
"The Price of Poor R&D and M&A 5-10 Years Ago"

Last year, the return on assets (ROA) of the top 50 companies remained in the 5% range. This was 2.2 percentage points lower than the previous year. The figures for automobile and battery companies increased, while those for electrical and electronic, and information technology (IT) companies declined. ROA is an indicator that shows the efficiency of a company's asset investment. It shows how high the profit output was relative to total asset input. It is calculated by dividing net profit by total assets. The lower the net profit, the lower the value.

View of Samsung Seocho Building in Seocho-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

According to a survey by financial information firm FnGuide, the ROA of 41 companies excluding financial firms among the top 50 companies has continuously declined over the past three years since 2021. It dropped from 7.9% at the end of 2021 to 5.7% at the end of last year, and is estimated to fall further to 4.8% by the end of this year (according to securities firms' estimates). Among these companies, 25 (61%) have lower estimated ROA this year compared to 2021, while 16 (39%) have higher ROA.

Except for the automobile and battery sectors, most industries saw a decline in ROA. Electrical and electronic (semiconductors and home appliances), IT, and steel and metals sectors have fallen for three consecutive years. Automobiles and batteries have risen for three consecutive years. Semiconductor ROA dropped from 8.4% in 2021 to 7% last year and 1% this year. IT fell from 18% to 6% to 5.3%, and steel and metals declined from 8.6% to 5.5% to 4.3%. Conversely, automobiles rose from 2.3% to 3.3% to 4.9%, and batteries increased from 2.3% to 7.2% to 7.5%.

Among the 41 companies, 9 (22%) are estimated to have an ROA this year that is more than 5 percentage points lower than in 2021. These companies include Naver (65% → 2.9%), HMM (39.2% → 7.3%), SK Hynix (11.5% → -9.5%), Samsung Electronics (9.9% → 2.6%), Kakao (9.5% → 2.4%), Krafton (14% → 8.4%), LG Household & Health Care (12% → 6.7%), LG Chem (8.6% → 3.6%), and POSCO Holdings (8.4% → 3.4%).

Naver's ROA was exceptionally high at 65% in 2021 because of the equity valuation gains from A Holdings (formerly Line), which was established together with SoftBank. The increase in net profit led to a higher ROA. Naver's consolidated net profit in 2021 was KRW 16.4135 trillion, significantly higher than KRW 8.45 trillion in 2020 and KRW 6.732 trillion last year. HMM's ROA temporarily rose in 2021 due to a surge in shipping freight rates caused by the global supply chain crisis during the COVID-19 pandemic. This year, with the global economic downturn reducing demand, cargo volume decreased, and shipping freight rates fell, causing ROA to drop to 7.3%.

Korea Electric Power Corporation (KEPCO) was the only company to record negative ROA for three consecutive years (-2.5%, -11%, -3.7%). The profitability indicator declined after the Moon Jae-in administration implemented a nuclear phase-out policy in June 2017.

Even in the automobile and battery industries, where ROA increased, the growth was not significant. The company with the highest increase was EcoPro BM (8.7% → 10.7%). LG Electronics (2.7% → 4.5%), Kia (7.5% → 9.1%), Samsung SDI (5.2% → 6.9%), and LG Energy Solution (4.3% → 5.5%) followed. Companies with large declines saw drops of more than 5%, while those with increases showed growth rates of 1-2%.

Other profitability indicators such as return on equity (ROE), operating profit margin, and controlling shareholder net profit margin showed similar trends. The ROE of the 41 companies fell from 14.2% in 2021 to 9% last year and 8.8% this year. Operating profit margin declined from 12.7% to 10.9% to 9.2%, and controlling shareholder net profit margin dropped from 15.9% to 7.9% to 6.8%.

Notably, most industries except for automobiles and batteries showed a downward trend in profitability indicators. Experts analyzed that the decline was not solely due to external factors such as interest rate hikes. It was a complex result of decreased product demand, weakening corporate growth momentum, and failures in mergers and acquisitions (M&A) and research and development (R&D) strategies over the past 5 to 10 years.

In particular, it was regrettable that Samsung Electronics, which earned profits during the semiconductor 'supercycle' in the late 2010s, failed to properly invest in M&A and R&D due to legal issues, resulting in deteriorated profitability. The automobile and battery sectors also face potential profitability declines due to reduced exports caused by subsidy-related variables such as the U.S. Inflation Reduction Act (IRA) and the European Critical Raw Materials Act (CRMA).

Changyoung Lee, a researcher at Yuanta Securities, said, "The reason for the decline in profitability of IT service companies such as Naver and Kakao is that competition in advertising and e-commerce markets has overheated, and they have not yet reaped profits from investments in new businesses such as webtoons, cloud, and finance." He added, "If profits increase in the future, profitability indicators will also improve."

Kim Kyung-jun, former vice chairman of Deloitte Consulting, said, "The continuous deterioration of major companies' profitability indicators over the past three years is evidence that M&A and R&D strategies invested in 5 to 10 years ago have failed." He added, "It is especially regrettable that Samsung Electronics, due to legal issues surrounding Chairman Lee Jae-yong, was unable to conduct M&A for seven years after acquiring Harman in 2016 and failed to properly utilize the profits earned during the semiconductor boom around 2017, which was a decisive cause of the profitability decline."

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