Q4 Earnings Season Kicks Off... Stocks with Rising Forecasts in Focus

The earnings season for the fourth quarter of last year has officially begun. Following LG Electronics on the 8th, Samsung Electronics and LG Energy Solution announced their fourth-quarter results on the 9th. Since the stock market has been sluggish at the beginning of the year, corporate earnings announcements are expected to have a significant impact on future stock price movements. Experts emphasized that, considering that fourth-quarter earnings generally fall short of expectations, more attention should be paid to changes in profit forecasts after the earnings announcements rather than the fourth-quarter results themselves.

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According to Daishin Securities on the 10th, the operating profit forecast for the KOSPI in the fourth quarter of last year is about 47 trillion won, down 7.1% from the previous quarter. Compared to the same period last year, it is expected to increase by 175%, which is due to the low base of the fourth quarter of 2022. The KOSPI operating profit in the fourth quarter of 2022 was only 17.1 trillion won, the lowest level since the financial crisis.

Researcher Jo Jae-woon of Daishin Securities explained, "The fourth-quarter KOSPI operating profit forecast is lower than the estimate of 51.6 trillion won based on domestic and export data for the fourth quarter, but it is expected to meet the consensus (average forecast by securities firms). The operating profit margin forecast for last year is 4.8%, the lowest level since 2005."

The mood at the start of the earnings season is not very positive. This is because the earnings of Samsung Electronics, LG Electronics, and LG Energy Solution, which have announced their results, all fell short of market expectations. Samsung Electronics announced preliminary results the day before, reporting fourth-quarter sales of 67 trillion won and operating profit of 2.8 trillion won for last year. According to financial information provider FnGuide, Samsung Electronics' fourth-quarter consensus was sales of 70.3601 trillion won and operating profit of 3.7441 trillion won, so the preliminary results fell short of the consensus. Kim Dong-won, a researcher at KB Securities, analyzed, "Samsung Electronics' fourth-quarter operating profit fell short of the consensus by about 1 trillion won due to expanded losses in system LSI and home appliances. However, the memory semiconductor loss in the fourth quarter appears to have shrunk by more than 50% compared to the previous quarter, indicating that earnings improvement is on track."

LG Electronics' operating profit for the fourth quarter of last year was 312.5 billion won, a 350.9% increase from the previous year's shock earnings, but it fell short of market expectations. LG Electronics' operating profit consensus was 639.5 billion won. LG Energy Solution's fourth-quarter operating profit also increased by 42.5% year-on-year to 338.2 billion won but fell significantly short of the consensus (587.7 billion won).

Since the stock market is currently undergoing a correction, corporate earnings results are expected to be linked to stock prices. Samsung Electronics' stock price fell by 2.35% the day before as its fourth-quarter results fell short of expectations. The stock price, which had been above 80,000 won at the beginning of the year, dropped to around 74,000 won. LG Electronics also fell by 1.11%. Yeom Dong-chan, a researcher at Korea Investment & Securities, said, "Issues such as cost reflection and asset amortization were concentrated in the fourth quarter, so fourth-quarter earnings are always sluggish. This year as well, earnings below market expectations will continue to be a burden on stock prices."

Since fourth-quarter earnings have generally been worse than expected, it seems more important to focus on changes in future profit forecasts rather than the fourth-quarter results themselves. Kim Min-gyu, a researcher at KB Securities, analyzed, "Earnings shocks can lead to downward revisions in profit forecasts, but considering that the phenomenon of growth stocks performing strongly as earnings forecasts decline at the beginning of the year has repeatedly appeared, attention should be focused on earnings growth this year rather than the fourth-quarter results. The greater the earnings concerns, the more attractive stocks with improving earnings become."

Han Ji-young, a researcher at Kiwoom Securities, said, "Changes in analysts' profit forecasts after earnings announcements and whether the overall stock market valuation rationalizes accordingly will serve as a turning point in the fundamentals of the stock market."

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