[Asia Economy Reporter Myunghwan Lee] About 40% of domestic listed companies posted disappointing earnings in the third quarter, falling more than 10% below market expectations. Securities firms advised focusing on companies that have continuously delivered 'earning surprises' despite the challenging domestic and international economic environment.
On the 25th, Asia Economy analyzed data from the financial information provider FnGuide and found that among 245 listed companies for which three or more securities firms had issued earnings forecasts, 100 companies recorded an 'earning shock' in the third quarter this year. This accounts for 40.82% of the analyzed companies. These companies’ operating profits in the third quarter fell more than 10% below securities firms’ forecasts. The group also included companies that turned to losses or expanded losses compared to the third-quarter forecasts.
Only 57 companies posted 'earning surprises' exceeding forecasts by more than 10%, or turned profitable or reduced losses. This represents just 23.27% of the companies that exceeded expectations. Meanwhile, 87 companies (35.51%) reported results within 10% of forecasts, aligning with market expectations.
By industry, bio and financial sectors led companies that outperformed forecasts. SD Biosensor posted an operating profit of 293.4 billion KRW, exceeding forecasts by 131.6%. Other companies with strong performances surpassing expectations included Daewon Pharmaceutical (63.4%), Samsung Biologics (36.6%), and HK Innoen (15.9%). Some financial firms such as Industrial Bank of Korea (16.8%), Korea Financial Group (13.2%), and Hana Financial Group (11.2%) also showed solid results.
On the other hand, finished car manufacturers like Hyundai Motor (-45.5%) and Kia (-60.7%), as well as consumer goods companies such as Maeil Dairies (-49.1%), Pulmuone (-40.8%), and E-Mart (-26.3%), fell short of expectations. Regarding this, Dongchan Yeom, a researcher at Korea Investment & Securities, said, "While financial and healthcare sectors exceeded expectations, the biggest impact came from the poor performance of consumer discretionary sectors. Hyundai Motor and Kia’s reflection of 2.5 trillion KRW in recall costs had the largest effect on the overall earnings decline."
The disappointing third-quarter earnings of listed companies are even more painful considering that earnings forecasts had already been lowered. Previously, securities firms had adjusted earnings forecasts downward in light of domestic and international economic conditions. Changmin Jo, a researcher at Yuanta Securities, expressed concern, saying, "The third quarter recorded an earning shock by falling below the continuously lowered profit forecasts, marking a different atmosphere from previous earnings seasons."
The outlook for the remaining fourth-quarter earnings is not very bright either. Seasonally, the fourth quarter tends to show lower earnings due to one-time costs or asset amortization. This raises the possibility of a downward revision for the full-year earnings. Researcher Yeom noted, "Although the expectations are low, upward revisions for 2023 earnings can be considered, but that timing will be after the end of March when the first-quarter 2023 earnings start to move. It is difficult to expect momentum in earnings until the end of the year."
Despite the challenging environment, there is advice to focus on companies that have consistently posted strong earnings. This is because the market’s reaction to earning surprises has become stronger. Changmin Jo of Yuanta Securities said, "In a market-wide earnings slowdown phase, the attractiveness of earning surprise-style stocks has increased. If preference for earning surprises grows, a strategy focusing on stocks that have consistently exceeded forecasts will be effective."
However, some argue that considering earnings uncertainty, attention should be paid more to stocks with excessive price declines rather than earnings. Jung-hoon Seo, a researcher at Samsung Securities, said, "From the perspective of reverse base effects, companies with bright earnings forecasts until recently may face setbacks amid recession concerns. Since it is difficult to expect earnings momentum, sectors that have already undergone downward earnings revisions may perform well from a contrarian viewpoint."
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