Domestic Listed Companies Experience Operating Profit Decline for Six Consecutive Quarters

F&Guide Survey of 1,406 Companies
Hit Bottom by Q4 Last Year
Recovery Expected This Year but COVID-19 Variable
Q2 Earnings Also Hard to Expect

[Asia Economy Reporter Oh Ju-yeon] Operating profits of domestic listed companies are expected to decline for six consecutive quarters. Although many had predicted that the fourth quarter of last year would be the bottom, the impact of the novel coronavirus disease (COVID-19) is expected to cause domestic companies' earnings to decrease in the first quarter of this year as well. It is pointed out that it will be difficult to expect earnings in the second quarter depending on the spread of COVID-19.

On the 9th, Asia Economy Newspaper commissioned financial information company FnGuide to analyze the quarterly operating profits of a total of 14 periods from the first quarter of 2017 to the second quarter of this year, estimating that operating profits have decreased for six consecutive quarters from the fourth quarter of 2018 to the first quarter of this year.

As a result of a survey targeting 1,406 domestic listed companies whose provisional results were announced until December last year, the operating profits of domestic listed companies, which showed an increasing trend compared to the previous year until the third quarter of 2018, experienced negative growth from the fourth quarter of the same year. Operating profit in the first quarter of 2018 was 53.7976 trillion won, an increase of 9.26% compared to 49.2363 trillion won in the first quarter of 2017. In the second quarter, it was 55.0438 trillion won, an 8.06% increase compared to 50.9393 trillion won in the same period of the previous year, and this trend continued until the third quarter. Operating profit in the third quarter was 57.4937 trillion won, 6.77% higher than 53.8507 trillion won in the same period of the previous year.

The increase in operating profits of domestic listed companies turned negative from the fourth quarter of 2018. With external variables such as the US-China trade conflict emerging, operating profits of domestic companies with high export dependence sharply declined to 32.4472 trillion won, down 23.44% compared to 42.3805 trillion won in the same period of the previous year. Since then, operating profits have not exceeded 40 trillion won for four consecutive quarters last year, and have shrunk every quarter compared to the same period of the previous year.

Operating profit in the first quarter of last year was 38.6485 trillion won, showing a decrease rate of -28.16% compared to the same period of the previous year. The decline widened in the second and third quarters. Operating profit in the second quarter was 39.059 trillion won, down -29.04%, and operating profit in the third quarter was 37.9777 trillion won, a negative growth of -33.94%. In the fourth quarter, the performance worsened even more than in the fourth quarter of 2018 when negative growth began, with operating profits of 1,406 companies totaling 27.0789 trillion won. Compared to the fourth quarter of 2017, two years earlier (42.3805 trillion won), more than one-third has disappeared.

Operating profit in the first quarter of this year is also expected to have difficulty turning positive. If this happens, it will mark six consecutive quarters of negative growth, the longest period comparable to the 2008 global financial crisis.

Since quarterly earnings announcements through consolidated financial statements have been made only since the introduction of International Financial Reporting Standards (IFRS) in 2011, it is difficult to directly compare the long-term quarterly earnings deterioration with that during the 2008 financial crisis. However, by examining the half-yearly operating profit growth rates, it can be inferred that the current period of operating profit decline is longer than during the financial crisis.

According to the Korea Exchange, until before 2011, results could be divided into the first and second half of the year. Analyzing half-yearly results from 2007 to 2009, operating profit of companies listed on the KOSPI market was 31.7044 trillion won in the first half of 2007 and increased by 23.92% to 39.2984 trillion won in the first half of 2008. In the second half of 2008, it sharply declined by 34.08% to 17.0227 trillion won compared to 25.8244 trillion won in the same period of the previous year. This downward trend continued until the first half of 2009. Operating profit in the first half of 2009 was 19.8933 trillion won, a 45.73% decrease compared to the same period of the previous year. From the second half of 2009, it turned positive again, with operating profit increasing by 109.64% to 35.6872 trillion won compared to the same period of the previous year.

Calculating only the negative growth period from the second half of 2008 to the first half of 2009 amounts to four quarters, and even assuming that positive growth in the first half of 2008 and the second half of 2009 occurred in only one quarter each, the total would be about six quarters. Therefore, the current six consecutive quarters of operating profit decline is the longest in the past decade.