Earnings Upgrade News Quiet... "Need to Lower Expectations and Observe"

Burden of Negative Factors Such as High Interest Rates, High Oil Prices, and Strong Dollar
Expectations for Improvement in Korean Exports... Anticipated Downside Rigidity in Index Secured

As the earnings season approaches, expectations are forming, but consensus changes remain minimal. Experts advise caution and suggest a wait-and-see approach rather than hastily setting investment strategies. Jae-woon Cho, a researcher at Daishin Securities, explained, "The 12-month forward operating profit consensus for KOSPI has risen by 0.84% over the past week, while KOSDAQ saw only a 0.22% increase, indicating that although the earnings season is near, the situation remains quiet."

Among 198 stocks with consensus data over the past year, 48 stocks (24.2%) had their consensus adjusted. Stocks with the highest upward revisions were Daehan Shipping, Binggrae, LG, Jin Air, and Kolon Industries, in that order. Stocks with the largest downward revisions included Lotte Holdings, Hanwha, GS Construction, Shinsegae Food, and Daesang.

The sectors with the highest upward revision rates were display, utilities, semiconductors, energy, and shipbuilding. It is analyzed that the display, utilities, semiconductors, and shipbuilding sectors experienced a base effect. In the energy sector, the upward revisions were driven by HD Hyundai (4.0%), SK Innovation (2.2%), and GS (1.9%), resulting in a high revision rate. Within the sector, S-Oil (-0.2%) drew attention as its 2024 consensus was revised downward by -1.5%. Other sectors with upward revisions included trading & capital goods and transportation. In trading & capital goods, holding companies LG (7.3%) and CJ (3.0%) led the upward revisions, while SK (-0.7%) was revised downward. In transportation, shipping stocks such as Daehan Shipping (7.1%) and Pan Ocean (2.0%) led the upward revisions. The sectors with the highest downward revision rates were insurance and consumer staples. Hanwha (-15.4%) led the downward revisions in insurance, with no other consensus changes within the sector. In the consumer staples sector, Lotte Holdings' 2024 consensus was revised downward by -29.0%, dragging the entire sector down. Other downward revisions included SPC Samlip (-0.3%), Hite Jinro (-1.8%), and Daesang (-4.7%).

Since there are no significant consensus changes yet, the target price change rates are evenly distributed between upward and downward adjustments. Over the past week, 84 stocks (with EPS estimates from three or more securities firms) had target price adjustments. Target prices for 40 stocks (47.6%) were raised, while 44 stocks (52.4%) were lowered. Among the top 10 stocks with upward revisions, three belonged to the machinery sector: Sungkwang Bend (7.8%), Taekwang (5.6%), and Hyosung Heavy Industries (3.8%) recorded high upward revision rates. Despite Sungkwang Bend and Taekwang having a divergence rate exceeding 60%, their target prices were raised. Conversely, among the top 10 stocks with downward revisions, two belonged to the construction & architecture sector: IS Dongseo (-4.8%) and GS Construction (-4.1%) ranked among the highest in downward revision rates.

Challenging Environment "KOSPI Upper Limit Controlled"

Experts advise abandoning excessive expectations. Kyung-min Lee, a researcher at Daishin Securities, said, "Although operating profit forecasts for the second half are expected to level up by more than 10 trillion won compared to the second quarter, if the actual results turn out to be worse than expected, sectors and stocks that rose on optimism will face volatility."

External factors such as the Russia-Ukraine war, delayed economic recovery in China, weak yen, and sharp interest rate hikes in the U.S. present challenges. Companies are increasingly concerned about rising costs due to rapid exchange rate increases (weak won) and soaring oil prices. Hae-jung Yang, a researcher at DS Investment & Securities, explained, "Although not as severe as last year, the dollar's strength since summer has become a burden. Even if the market remains sideways, it could be favorable for risk assets."

However, since there are factors that raise expectations for the earnings season, the downside rigidity is expected to strengthen. Recently, economic indicators boosting third-quarter earnings expectations have been released, such as improvements in South Korea's exports centered on semiconductors. Jung-hwan Na, a researcher at NH Investment & Securities, analyzed, "A key indicator to gauge domestic third-quarter corporate earnings is September exports, which showed a -4.4% year-on-year decrease, but the decline has been narrowing since July." He added, "Notably, semiconductor exports reached $9.9 billion, the highest since October 2022, showing an increase in exports since the first quarter of this year. Additionally, the U.S. Institute for Supply Management (ISM) manufacturing index, which has a high correlation with domestic exports, rose significantly to 49 in September from 47.6 the previous month, further raising expectations for earnings improvement." Researcher Yang said, "Although third-quarter earnings expectations are low, the export trend suggests the outlook may not be bad. If so, profit sentiment is likely to rise with earnings announcements, and the earnings season could become a turning point."

In the long term, there is also an opinion that semiconductors will reshape market direction. Young-min Ko, a researcher at Daol Investment & Securities, predicted, "With Samsung Electronics and SK Hynix announcing their third-quarter earnings by the end of October, stock price direction will be reestablished." He added, "The semiconductor sector, which shows clear fundamental improvements through the second half of this year and into 2024, is expected to exhibit relatively rapid stock price recovery."