Visible Impact of COVID-19 Shock... Q1 Operating Profit of Listed Companies Down 19% YoY

229 Listed Companies, Q1 Operating Profit of 25.6377 Trillion KRW
19.05% Decrease from Last Year's 31.6732 Trillion KRW

[Asia Economy Reporter Oh Ju-yeon] Due to the impact of the novel coronavirus infection (COVID-19), it has become difficult for major domestic companies to avoid a performance shock in the first quarter.

According to FnGuide, a financial information company, as of the previous day, the operating profit of 229 listed companies with earnings estimates from three or more securities firms for the first quarter of this year is expected to be 25.6377 trillion won, a 19.05% decrease from last year's 31.6732 trillion won. This decline is 2.13 percentage points larger than the 16.92% decrease in operating profit compared to the previous year, which was surveyed on the 3rd of this month for 141 listed companies with estimates from three or more securities firms. The gap may widen further depending on how much the first-quarter earnings forecasts of companies yet to be released are revised downward. In particular, industries directly hit by COVID-19 such as aviation, tourism, refining, and energy have seen their earnings forecasts significantly lowered, drawing attention to the actual extent of their decline.

The semiconductor sector is analyzed to have a somewhat limited downward revision in earnings. Samsung Electronics announced its first-quarter operating profit at 6.4 trillion won, exceeding market consensus (5.7 trillion to 5.8 trillion won). This is attributed to the market's low expectations and the fact that the slowdown in front-end demand due to COVID-19 only limitedly affected the set business division. SK Hynix is expected to see a small decline in earnings as cloud demand increases due to remote education and telecommuting, and DRAM prices stabilize.

Other industries are expected to experience significant earnings declines due to reduced demand caused by COVID-19. The company with the largest drop in earnings compared to the first quarter of last year is Hyundai Steel, whose operating profit for this quarter is expected to be 22.5 billion won, a decrease of 89.4% year-on-year. The refining industry saw a sharp drop in earnings forecasts due to the international oil price plummeting to around $20 per barrel, worsening refining margins, and losses from crude oil inventory valuation. SK Innovation is expected to post an operating loss of 560.8 billion won in the first quarter, turning to a deficit from a 331.1 billion won profit in the first quarter of last year. S-Oil is also expected to turn to a loss with an operating loss of 368.4 billion won in the first quarter.

Travel-related industries are all expected to turn to losses. In particular, the aviation industry, which was already struggling, is expected to worsen further, with Korean Air posting a loss of 99.6 billion won in the first quarter, and Jeju Air and T'way Air expected to post losses of 50.5 billion won and 37.9 billion won, respectively. Hana Tour and Modetour, which posted operating profits of 13.2 billion won and 9.1 billion won in the first quarter of last year, are expected to record losses of 19.1 billion won and 8.8 billion won, respectively, in the first quarter of this year.

Corporate stock prices are also expected to be significantly affected by first-quarter earnings. Lee Kyung-soo, a researcher at Hana Financial Investment, said, "During the financial crisis, earnings were more important than sentiment," and added, "We will focus on future earnings." He also noted, "During the 2008 financial crisis, sentiment indicators such as the fear index and the dollar index showed high volatility only during the first bottom phase and did not become decisive variables during the second bottom phase."