Samsung Electronics Q3 Earnings Expected to Fall Short of Estimates... S-Oil and Simtek Forecasted to Perform Well

Stock Market Stagnates as Q3 Earnings Expectations Decline
Samsung Electronics Operating Profit Expected to Remain in 1 Trillion KRW Range... SK Hynix Forecasted to Reduce Operating Losses
72 Out of 251 Listed Companies See Upward Revision in Operating Profit Consensus

Amid a sluggish stock market, expectations for third-quarter earnings this year are declining. While overall expectations are lowering, interest in stocks with upwardly revised outlooks is expected to grow.

Samsung Electronics Seocho Building. Photo by Jinhyung Kang aymsdream@

According to financial information provider FnGuide, among 251 listed companies with earnings consensus estimates from three or more forecasting institutions (excluding insurance operating profits due to differing concepts of results and estimates), 72 companies saw their operating profit consensus revised upward compared to a month ago. Of these, the operating profits of 67 companies were raised by an average of 5.0%, and five companies saw a reduction in their deficit size.

The company with the largest upward revision compared to a month ago was KEPCO Engineering & Construction (HanJeon Gisul). The third-quarter operating profit consensus was 2.4 billion KRW a month ago but has now risen to 5.3 billion KRW, an increase of 119.2%. Yuje-seon, a researcher at Hana Securities, stated, "It is judged that the profit margin is stabilizing as the contribution of sales from relatively high-margin nuclear power and raw materials sectors is increasing," adding, "Considering the high likelihood of increased domestic and international large nuclear power plant orders in the future, sales and margin improvements are expected to continue." Hana Securities forecasts KEPCO Engineering & Construction's annual sales this year to increase by 8.5% year-on-year to 547.9 billion KRW, and operating profit to rise by 275.2% to 52 billion KRW.

Simtek's third-quarter operating profit consensus was revised upward by 22.8%, from 3.4 billion KRW a month ago to 4.1 billion KRW. Having recorded a deficit in the first half of this year, Simtek is expected to return to profitability in the third quarter. Kang-ho Park, a researcher at Daishin Securities, explained, "Simtek is expected to recover profitability rapidly starting from the third quarter, turning profitable," and "Operating profit is estimated to increase from a low of a 21.6 billion KRW operating loss in the second quarter to 6.4 billion KRW in the third quarter and 24.7 billion KRW in the fourth quarter."

Consensus estimates for refining stocks expected to benefit from rising oil prices are also on the rise. S-Oil's third-quarter operating profit consensus is 528.1 billion KRW, an 18.3% increase from 446.3 billion KRW a month ago. The operating profit estimates for GS, the holding company of GS Caltex, and HD Hyundai, which operates Hyundai Oilbank, have also risen by 15.1% and 5.8%, respectively, compared to a month ago. Do-hyung Kim, a researcher at SK Securities, forecasted, "Based on a favorable situation created by supply and demand, oil prices will continue to be strong until the end of the year," adding, "Refining margins are expected to peak in the third quarter and stabilize downward in the fourth quarter. Although demand improvement in advanced countries is uncertain, downstream demand centered on still robust emerging markets will maintain refining margin levels higher than in the past."

SK Hynix's deficit size has shrunk compared to a month ago. SK Hynix is expected to record an operating loss of 1.6751 trillion KRW in the third quarter, reduced from 1.7505 trillion KRW a month ago.

In contrast, earnings expectations for Samsung Electronics have been lowered compared to a month ago. Samsung Electronics' third-quarter operating profit consensus is 2.5324 trillion KRW, down 14.6% from 2.9666 trillion KRW a month ago. Securities firms are predicting operating profits in the 1 trillion KRW range, lower than the consensus. Boyoung Choi, a researcher at Kyobo Securities, projected, "Samsung Electronics' third-quarter sales are expected to decline 12.1% year-on-year to 67.05 trillion KRW, and operating profit to decrease 83.4% to 1.8 trillion KRW," adding, "Overall demand weakness and cost burdens in the third quarter will limit earnings improvement."

Kwangjin Kim, a researcher at Hanwha Investment & Securities, said, "Samsung Electronics' third-quarter operating profit is expected to be 1.95 trillion KRW, somewhat below market expectations," and "The semiconductor (DS) division's earnings improvement is progressing more slowly than expected, so it is necessary to lower expectations somewhat."

Overall earnings expectations for the third quarter, including Samsung Electronics, are declining. The operating profit consensus for 108 stocks has been lowered by an average of 6.4%, and seven companies are expected to see an increase in deficit size or a transition to deficit. The stock with the largest downward revision is Nextin, with consensus lowered by 58.7% compared to a month ago, followed by Lotte Chemical at 47.1%. Additionally, the operating profit consensus for HMM and Hanwha Aerospace has also dropped by more than 20% compared to a month ago.