Listed SMEs with increased sales and reduced deficits... "Profitability improvement will be clear next year"

The performance of domestically listed small and medium-sized enterprises (SMEs) showed a slight rebound in the second quarter. Although operating losses continue, the deficit has narrowed, and greater profitability improvements are expected next year.

According to the report "2023 Q2 Performance Trends and Outlook for Listed Small and Medium-sized Enterprises" released by Woori Financial Management Research Institute on the 19th, the combined sales of 675 non-financial listed SMEs with sales under 100 billion KRW in the second quarter of this year amounted to 9.2 trillion KRW, with an operating loss of 81.4 billion KRW.

The average sales per company were 13.6 billion KRW, and the operating loss averaged 120 million KRW per company.

The sales growth rate, which had declined for four consecutive quarters, rebounded slightly to 9.0%, and the operating profit margin rose by 2.5 percentage points from -3.4% in the previous quarter to -0.9%.

Looking at detailed industries, the largest performance improvements were seen in automobile parts, construction materials, healthcare equipment and services, broadcasting and entertainment, and cosmetics, in that order.

The average sales growth rate of these top five industries was 20.3%, significantly exceeding the average for listed SMEs, and their operating profit margin was 3.2%, showing a better performance compared to the overall average.

Compared to the same period last year, the industry with the highest sales growth rate was automobile parts (34.0%), and the largest improvement in profitability was in cosmetics, which improved from -7.6% in Q2 last year to 1.5% in Q2 this year.

On the other hand, bio, handset, telecommunications equipment, display equipment and parts, and electronic equipment and devices showed poor performance.

The average sales growth rate of the bottom five industries was -5.6%, and the operating profit margin was -18.0%, showing a significant gap compared to the average for listed SMEs. Among them, the bio industry’s profitability deterioration was the most notable, dropping from 9.9% to -42.9% during the same period.

The report forecasted that the profitability of listed SMEs will clearly improve next year due to domestic and international economic recovery and reduced inflationary pressures.

The report explained, "Listed SMEs that experienced slowed sales growth and operating losses in the first half of this year due to the end of the COVID-19 special demand and the high interest burden caused by rising prices are expected to see some performance improvement in the second half."

It added, "In 2024, the trend of interest rate hikes by major countries is likely to end, and with the U.S. presidential election scheduled, active economic stimulus measures are expected to continue."

By industry, semiconductor equipment and parts, telecommunications equipment, display equipment and parts, steel, broadcasting and entertainment, textiles and apparel, cosmetics, and gaming industries are expected to enter a recovery phase next year due to increased overseas sales, while bio, computer peripherals, handset, and construction materials industries are expected to continue stagnation due to weak demand.

However, the sluggish Chinese economy could be a variable. The report stated, "If the slowdown in China’s economic growth deepens more than expected, the overall pace of performance recovery may slow, especially in construction materials and steel industries, which still heavily depend on Chinese demand."

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