Listed Companies Earn More This Year... Valuations Soar "Sectors to Watch"

KOSPI Listed Companies' Operating Profit Expected to Reach Around 185 Trillion Won, 'All-Time High'
Target Prices Revised Upward Continuously... Sectors with Strong Earnings Momentum Attractive for Investment

[Asia Economy Reporter Lee Seon-ae] This year, there is great optimism about the earnings of companies listed on the KOSPI and KOSDAQ. Unlike the indices, which have been caught in short-term fatigue due to rapid rises at the end and beginning of the year, corporate profit forecasts continue to rise, raising expectations that they will defend against future index declines and establish a solid support level.

According to financial information provider FnGuide on the 16th, the total operating profit estimate for 173 KOSPI-listed companies with earnings estimates from three or more securities firms is KRW 176.5965 trillion for this year. Compared to the estimates at the end of September last year, this is an increase of 7.31%. The total net profit estimate is KRW 129.2536 trillion, up 8.39% from the end of September last year. For 65 KOSDAQ-listed companies, the total operating profit estimate for this year is KRW 6.1012 trillion, and the total net profit estimate is KRW 4.6462 trillion, which are increases of 2.33% and 1.45%, respectively, compared to the end of September last year.

Kim Ji-yoon, a researcher at Daishin Securities, said, "The operating profit forecasts for KOSPI companies this year continue to be revised upward. Since the upward revision of earnings forecasts began in earnest at the end of September last year, the KOSPI 2021 operating profit consensus has risen by 7.0% to date," adding, "With ongoing expectations for economic recovery, earnings forecast upgrades are continuing, led by cyclical stocks and export-oriented companies."

Kim Kwang-hyun, a researcher at Yuanta Securities, said, "Despite the first-half slump caused by COVID-19, KOSPI companies had a better year in terms of profits compared to 2019," and forecasted, "This year, operating profits are expected to reach around KRW 185 trillion, which is even higher than the record high in 2018."

As domestic companies’ earnings are expected to rise, target price upgrades have been following since the beginning of the year. According to FnGuide, the stock with the largest average target price change rate suggested by securities firms from the beginning of this year to the 14th was Hyosung TNC (119.66%). Following were Hyundai Wia, Hyosung Advanced Materials, SK Innovation, POSCO Chemical, Mando, Kumho Petrochemical, Jin Air, Kia Motors, Daewoo Construction, Samsung SDI, LG Electronics, LG International, TCK, and others. All these stocks recorded changes of over 40%.

Accordingly, sector-focused investments reflecting expectations of economic recovery are expected to be promising. Yuanta Securities analyzed, "Automobile, pharmaceutical & bio, shipping, securities, internet & gaming, chemical, and banking sectors are expected to record higher profits compared to 2018," adding, "In addition, construction, food & beverage, and media & entertainment sectors are also expected to reach record-high forecasts this year."

Hana Financial Investment diagnosed that stocks with ‘3-month earnings momentum’ or those with ‘1-month target price upgrades’ have posted relatively high returns of 8.5% and 6.4%, respectively, since the beginning of the year, suggesting that investments based on these factors are effective. Hana Financial Investment analyzed, "Currently, IT, automobile, semiconductor, software, and display sectors, which have the strongest earnings momentum, will continue their price strength." Favorable earnings stocks include LG Display, Hyosung TNC, Intops, GS, Halla Holdings, Poongsan, TES, LS, Huons, and Kolon Industries.

Meanwhile, as the fourth-quarter earnings announcements for last year are nearing completion, many listed companies have posted earnings surprises. The total operating profit of 120 companies that have announced earnings so far is KRW 27.3125 trillion, about KRW 900 billion more than the securities firms’ estimate of KRW 26.4598 trillion. Sales also exceeded securities firms’ estimates, totaling KRW 304.7151 trillion compared to the estimate of KRW 302.8142 trillion. The total net profit was KRW 17.4672 trillion, somewhat lower than the estimate of KRW 20.1554 trillion but still at a decent level. In terms of the number of companies, 52 companies, accounting for 43.7%, exceeded the consensus in operating profit.