From the End of This Month When the 4th Stage Social Distancing Ends
KOSPI Earnings Season Kicks Off
Analyzing Sectors and Stocks with Upward Revisions in Brokerage Profit Estimates
Expectations for Gains in Steel, Non-Ferrous Metals, Wood, and Display Sectors
[Asia Economy Reporter Ji Yeon-jin] As the domestic stock market enters the full-fledged earnings season from the end of this month, following the end of the Level 4 social distancing measures in the Seoul metropolitan area due to the spread of the COVID-19 Delta variant, a differentiated market is expected to develop centered on sectors and stocks that achieved 'surprise earnings' in the second quarter. With fundamentals supporting the domestic stock market, such as the upward revision of KOSPI earnings estimates after Samsung Electronics' earnings announcement, investment sentiment is likely to recover in stocks with strong earnings once concerns about the pandemic ease.
According to the financial investment industry on the 13th, this year's KOSPI operating profit is estimated at 224.7 trillion KRW, and net profit at 159.7 trillion KRW. These figures were revised upward by 1.4% and 1.3%, respectively, following Samsung Electronics' earnings announcement on the 7th. The KOSPI's second-quarter operating profit estimate is 51.1 trillion KRW, and net profit is 35.3 trillion KRW, expected to decline compared to the first quarter. Due to the base effect from COVID-19 last year, KOSPI operating profit in the first quarter of this year was 59.2 trillion KRW, and net profit was 41.8 trillion KRW, growing 118.1% and 260% year-on-year, respectively. Analysis suggests that operating profit will be lowest in the second quarter this year, with the third quarter (60.1 trillion KRW) peaking.
Last month, the domestic stock market, which had been on the rise due to expectations of economic normalization, experienced a correction last week due to the rapid spread of the COVID-19 Delta variant. Amid concerns about a 'peak out' in the domestic stock market, investment sentiment sharply froze as social distancing was raised to the highest Level 4 until the end of this month. However, if pandemic concerns subside, the KOSPI entering the earnings season is expected to show notable performance centered on earnings.
According to SK Securities' analysis of changes in earnings estimates by securities firms over the past month, sectors within the KOSPI's 26 industries with a higher proportion of securities firms revising operating profit estimates upward compared to market expectations included semiconductors, energy (batteries), steel, ITHW, non-ferrous metals and wood, and displays. Among these, sectors with high upward revision rates of earnings estimates and third-quarter estimate upgrade ratios, indicating high potential for stock price increases, were steel, non-ferrous metals and wood, and displays.
Stocks with significant potential for earnings improvement within the KOSPI 200 include Korean Air, Korea Aerospace Industries, Hotel Shilla, Dongkuk Steel, and SK Innovation. For Korean Air, the second-quarter operating profit estimate recently increased by more than 169% compared to a month ago. According to a report released yesterday by NH Investment & Securities, Korean Air's second-quarter operating profit estimate rose sharply to 169 billion KRW from the previous 76 billion KRW. Among these stocks, those with high upward revision ratios for third-quarter earnings estimates and high potential for stock price increases include Hotel Shilla, Dongkuk Steel, HMM, SKC, LG Display, and Kolon Industries.
Lee Jae-yoon, a researcher at SK Securities, stated, "The domestic stock market, adjusted due to the Delta variant shock, saw the KOSPI's 12-month price-to-earnings ratio (PER) fall to 11.2 times, easing valuation pressure," adding, "Over the past month, the higher the proportion of securities firms covering stocks that revised earnings estimates above consensus, the greater the probability of a surprise."
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