COVID Base Effect Leads to Significant Earnings Growth for Top 10 Groups

Q1 Operating Profit Up 160% YoY
Notable Improvement in Retail Industry Performance
SK and Hyundai Heavy Achieve Profit Turnaround

[Asia Economy Reporter Song Hwajeong] Amid a significant improvement in corporate earnings in the first quarter of this year due to the base effect of COVID-19 and other factors, the earnings of the top 10 groups increased by 160% compared to the same period last year.

According to financial information firm FnGuide on the 21st, the combined operating profit of 93 listed companies within the top 10 groups in the first quarter was 32.8398 trillion KRW, up 160.8% from the same period last year. Sales and net profit were 344.5323 trillion KRW and 26.2532 trillion KRW, respectively, increasing by 11% and 191.3%.

The earnings improvement was particularly notable among distribution-related groups. Lotte Group recorded an operating profit of 843.8 billion KRW in the first quarter, soaring 1161.4% compared to the same period last year, showing the largest increase among the top 10 groups. Shinsegae Group also posted an operating profit of 273.2 billion KRW in the first quarter, up 319.4% year-on-year. In addition, Hanwha (212%), GS (196%), and LG (148.2%) showed triple-digit growth rates compared to the same period last year.

Samsung Group's operating profit in the first quarter was 12.6695 trillion KRW, accounting for about 40% of the total operating profit of the top 10 groups, but its growth rate was 60.7%, the lowest among the top 10 groups.

SK and Hyundai Heavy Industries succeeded in turning a profit compared to the same period last year. SK Group recorded a loss of 1.336 trillion KRW in the first quarter last year but turned to a profit with an operating profit of 4.1281 trillion KRW this year. Hyundai Heavy Industries also shifted from a loss of 313.4 billion KRW in the first quarter last year to a profit of 718.1 billion KRW in the first quarter this year.

Although profitability improved significantly due to cost reductions and other factors, some groups showed a decline in sales. SK, Hanwha, and GS groups all saw their first-quarter sales decrease compared to the same period last year. SK's first-quarter sales were 52.4856 trillion KRW, down 1.0%, while Hanwha and GS fell by 6.7% and 5.7%, respectively.

Among the 93 listed companies in the top 10 groups, 11 companies turned profitable. These include Hanwha Investment & Securities, Robostar, LG Display, Lotte Chemical, Dreamus Company, Hyundai Heavy Industries Holdings, Hyundai Steel, Shinsegae Food, SK, SK Innovation, and Hotel Shilla. On the other hand, Samsung Heavy Industries' loss widened from 227 billion KRW last year to 506.8 billion KRW this year, and POSCO ICT and SM Core returned to losses.

Researcher Kim Kwanghyun of Yuanta Securities analyzed, "All sectors except industrials and healthcare exceeded expectations, and even in industrials, excluding the large earnings shock from Samsung Heavy Industries, results exceeded forecasts by about 10%. Although Samsung Electronics and SK Hynix only slightly exceeded expectations, other stocks significantly outperformed forecasts, and especially holding companies recorded solid earnings as their affiliates showed overall profit growth."

While second-quarter earnings are expected to continue a sharp increase compared to the same period last year, they are forecasted to slightly decline compared to the first quarter. Researcher Lee Changhwan of Hyundai Motor Securities said, "The operating profit forecast for Korean companies in the second quarter is 46.2 trillion KRW, up 60.5% year-on-year, showing significant growth, but it will decrease compared to the first quarter. However, the fact that the second-quarter earnings forecast is being sharply revised upward is positive. If further upward revisions continue and second-quarter results meet expectations, the performance will be at a good level, not significantly falling behind the first quarter."