[Q1 Earnings Shock Expected] ① Bottom Still Far Away... Semiconductor Remains 'Cloudy'

Q1 Listed Companies Operating Profit Forecast at 27.8 Trillion KRW
44% Decrease from Last Year... Semiconductor Sector Earnings Plummet
Display, Shipping, and Steel Sector Earnings Downgraded Continues

[Asia Economy Reporter Minji Lee] As the economic downturn continues, the performance of domestic listed companies in the first quarter of this year is also expected to be disappointing. With securities firms repeatedly lowering their earnings forecasts, some analysts suggest that the corporate situation may be worse than current estimates indicate.

Operating Profit of Listed Companies Halved Compared to a Year Ago

According to financial information provider FnGuide, as of the 14th, the total operating profit of 185 domestic listed companies estimated by three or more institutions for the first quarter of this year is expected to be 27.8958 trillion KRW, about half (-44%) of the 49.9154 trillion KRW recorded in the first quarter of last year. Net profit is also expected to decrease by 41% to 242 trillion KRW. Sales revenue is projected to increase slightly by 0.6% to 506.2606 trillion KRW compared to 503.4884 trillion KRW a year ago.

The problem is that the operating profit of listed companies in the first quarter of this year could be even lower than current estimates. As companies continue to announce their fourth-quarter results of last year, most have reported figures below expectations. According to Hana Securities, with 75% of domestic listed companies having reported earnings so far, the quarterly earnings surprise ratio is at a historic low. The total profit of about 890 listed companies compiled so far is 24.1 trillion KRW, shrinking approximately 31% and 48% compared to market estimates and the same period last year, respectively.

Researcher Changmin Cho of Yuanta Securities said, “The overall market’s achievement rate of forecasts and earnings surprise ratio will be lower than the fourth-quarter average,” adding, “As earnings shocks continue, companies are repeatedly missing forecasts, so the downward revision of corporate profits in the first half of this year will likely deepen.”

Red Flags Continue for Semiconductor Companies in Q1

The sector showing the most severe red flags is semiconductor-related stocks. Although the exchange rate effect has weakened, the rapid decline in demand due to the economic recession is expected to sharply reduce corporate profit resilience. The combined operating profit of 10 semiconductor and equipment companies (Samsung Electronics, SK Hynix, PSK, Wonik QnC, Soulbrain, Hanmi Semiconductor, Haesung DS, EO Technics, Eugene Technology, LX Semicon) in the first quarter is only 3.2 billion KRW.

The sluggish performance of semiconductor giants Samsung Electronics and SK Hynix has a significant impact. Samsung Electronics is expected to record an operating profit of 2.42 trillion KRW in the first quarter, a sharp decline of over 83% compared to 14 trillion KRW a year ago. SK Hynix is projected to post a loss of 2.7 trillion KRW, the only company among the ten to do so. SK Hynix recorded an operating loss of 1.7 trillion KRW in the fourth quarter of last year for the first time in 10 years. The loss is expected to widen in the first quarter of this year.

Experts see the semiconductor industry’s downturn peaking in the second quarter. With global semiconductor companies continuing supply adjustments and reducing capital expenditures, inventory depletion is expected to conclude during the first half of the year. Although the timing of demand recovery for IT products such as smartphones, cloud, and PCs is uncertain due to the economic slowdown, demand improvement is anticipated from the second half of the year onward. Researcher Seungyeon Seo of Shin Young Securities said, “If purchasing demand is detected due to inventory normalization by mobile customers, a flexible stock price rise is expected, and it would be a good opportunity to buy when price fluctuations expand, especially among large semiconductor stocks.” LG Display, related to the display sector affected by weak IT demand, is expected to record losses for the fourth consecutive quarter. The deficit is estimated at around 820 billion KRW, marking a turnaround to losses compared to a year ago.

The shipping industry is also expected to see a significant decline in earnings (-70%). Although it recorded solid profits based on high freight rates during the COVID-19 period, negative outlooks continue as freight market conditions deteriorate. Pan Ocean and HMM are estimated to record operating profits of 125 billion KRW and 799.3 billion KRW, respectively, down about 25% and 75% compared to the same period last year.

Profits in the steel industry (SeAH Besteel Holdings, Poongsan, Korea Zinc, Dongkuk Steel, Hyundai Steel, POSCO Holdings) are also expected to shrink by more than 60% compared to the same period last year. Researcher Moonseon Choi of Korea Investment & Securities said, “The lifting of China’s zero-COVID policy and normalization of production will negatively affect the industry,” adding, “Due to the economic downturn, demand is unlikely to increase while production may rise, making it difficult for the steel industry to improve in the first half of this year.”

Low-Cost Airlines and Shipbuilding Stocks Start Turning Profitable

Low-cost carriers (LCCs) T’way Air and Jeju Air are expected to turn profitable with operating profits of 28.3 billion KRW and 49.5 billion KRW, respectively. They are taking off after the COVID-19 slump. Already, in December last year, international passengers of domestic LCCs surged more than fourfold compared to September, leading to estimated profitability. Researcher Choowoon Choi of Korea Investment & Securities said, “Although economic uncertainty is high, individual momentum such as the resumption of travel to Japan and China’s reopening is becoming more prominent,” adding, “With better-than-expected fare increases, LCCs are expected to record earnings surprises in the first quarter.”

On January 20, ahead of the Lunar New Year holiday, Incheon International Airport Terminal 1 duty-free area is bustling with travelers preparing to depart. Photo by Jinhyung Kang aymsdream@

Shipbuilding companies that struggled with losses in the first quarter of last year are expected to largely return to profitability. Some shipbuilders that previously recorded losses have expressed confidence in turning profitable in their earnings guidance for this year. This is because domestic shipbuilders have started constructing orders received beyond their production capacity since 2021, which is expected to translate into this year’s results. In fact, in the first quarter, Daewoo Shipbuilding & Marine Engineering (20.1 billion KRW), Samsung Heavy Industries (14.4 billion KRW), Hyundai Heavy Industries (56.2 billion KRW), and HSD Engine (11.3 billion KRW) are expected to turn profitable compared to the same period last year. Hyundai Mipo Dockyard (-16 billion KRW) is expected to reduce its losses.