[Expert Says - Industry Outlook] "Focus on Booming Semiconductor and Shipbuilding, Selective Approach to K-Export Stocks"

Semiconductors, HBM, and Legacy Accompanying Cycle 'Expected'
Banks and Automobiles, Importance of Shareholder Return Scale and Speed
Secondary Batteries, Different Situation from Last Year... "Difficult to Be Optimistic"

The securities industry has analyzed that in the second half of this year’s stock market, attention should be paid to industries experiencing a boom, such as semiconductors and shipbuilding. They also advised a selective approach to K-export stocks that can sustain export momentum. However, they analyzed that some sectors, such as secondary batteries and apparel, still have risks that need to be resolved for stock prices to rebound.

Semiconductor and Shipbuilding Boom, Clear Outlook for Cosmetics Export Growth

Semiconductors, shipbuilding, and cosmetics are forecasted to have a clear outlook, supported by industrial booms and export momentum.

The current semiconductor boom is widely regarded by experts as a simultaneous cycle of high-bandwidth memory (HBM) and legacy semiconductors. Semiconductor companies are expected to remain busy in the second half of the year to maximize profits during the long-term boom continuing through 2025. In past semiconductor cycles, capacity expansion and infrastructure investment overlapped mainly for mature products, but this time, investments are expected to proceed simultaneously across all areas including infrastructure, DRAM, HBM, and enterprise solid-state drives (eSSD). Samsung Securities researcher Hwang Min-sung analyzed, "The market sometimes expects a shortage of general-purpose semiconductors due to excessive allocation of production capacity to HBM. If AI growth has so far triggered a chain reaction of a boom in general-purpose semiconductors, the simultaneous rise of AI and general-purpose semiconductors may lead to a chain reaction of debt reduction and financial improvement for SK Hynix, and increased shareholder value for Samsung Electronics."

The shipbuilding sector is expected to maintain a supplier’s market. In terms of profitability, additional labor-related costs are in the final stages for each shipbuilder, and performance improvement is expected due to price increases and volume growth. Additionally, orders for eco-friendly ships such as ammonia carriers are continuing, and defense-related sales including warships and submarines are expected to grow regardless of the economic cycle. SK Securities researcher Han Seung-han said, "The growing price negotiation power of shipyards due to the supplier’s market, and demand for eco-friendly ship orders driven by gradually strengthened International Maritime Organization (IMO) environmental regulations will lead to an upward trend in the new ship price index. The strategy of Korea’s top three shipbuilders to continue selective orders focused on profitability to maintain performance improvement momentum will remain valid." He added, "From the second half, increases in shipbuilding prices, cost reductions due to normalization of processes, and gradual resolution of labor shortages are expected. Attention should be paid to companies like HD Hyundai Heavy Industries that can expand the proportion of high-priced shipbuilding through profitability maximization strategies based on stable order backlogs."

Cosmetics recorded a high stock price increase in the second quarter of this year, fueled by the K-beauty wave. However, last month’s decline in cosmetics exports compared to the previous month raised concerns among investors about a slowdown in export momentum. Nonetheless, the securities industry judged that concerns about a sustained export slowdown are excessive. Mirae Asset Securities researcher Baek Song said, "Looking at exports to the U.S., the trend is solid to describe it as a slowdown. Last month’s export decline is nothing more than a simple base effect and seasonality, so a rebound is expected this month." He added, "Expansion outside China is still in its early second year, and many cosmetics companies are expecting additional momentum in the upcoming peak season. Contrary to market concerns, the cosmetics industry is better than ever. Major consumer events such as Amazon Prime Big Deal Days in October and Black Friday later in the year are concentrated in the second half, so expectations remain high."

Selective Approach Needed for Food and Beverage... Bank and Automobile Shareholder Returns Are Key

The food and beverage, banking, and automobile sectors are expected to be mostly clear, though some uncertainties exist.

The food and beverage sector’s export performance is expected to be important. In the second quarter of this year, the food and beverage sector index outperformed the KOSPI due to Samyang Foods’ surprise earnings, expansion of K-food exports, improved cost ratios, and expectations of benefits from the heatwave. For stock prices to continue rising in the remaining second half, a foundation for high earnings growth must be secured. From this perspective, attention should be paid to the production capacity growth rate, which can affect overall company performance. Kiwoom Securities researcher Park Sang-jun evaluated, "Samyang Foods is increasing production capacity by 40% in 2025 and is penetrating markets with high average selling prices (ASP). Visibility of overall profitability improvement is high." He added, "While some companies like Samyang Foods have concrete growth visibility, it is undeniable that some stocks have risen solely on export expansion expectations. Companies like CJ CheilJedang, which have potential for global sales expansion and mid- to long-term growth, should be noted."

Bank stocks have risen sharply since the beginning of the year, but further gains are still possible. They are especially attractive compared to other sectors in terms of shareholder return yields. The biggest factor for further stock price revaluation in the banking sector in the second half is expected to be whether KB Financial Group, Shinhan Financial Group, and Hana Financial Group will repurchase shares and the scale of such buybacks. Samsung Securities researcher Kim Jae-woo said, "Selective approaches are needed focusing on banks in undervalued ranges that are strengthening shareholder returns while rapidly improving indicators such as the Common Equity Tier 1 (CET1) ratio."

The automobile sector is expected to maintain decent operating profits, supported by strong vehicle sales in the North American market and favorable exchange rate effects. The securities industry pointed out value-up policies and the possibility of shareholder return execution as important variables for automobile stock prices. SangSangIn Securities researcher Yoo Min-ki said, "Rapid share buybacks will support the downside of stock prices. Just as Kia’s share buyback earlier this year led to a strong stock price, Hyundai Motor’s likely share buyback in the second half can be expected to have a similar effect." However, he advised, "Caution is needed when expanding interest to parts stocks with low growth potential in emerging markets or where expectations for shareholder return policies are not high."

Apparel and Secondary Batteries Forecasted to Remain Cloudy Due to Distant Industry Recovery

Apparel and secondary batteries are forecasted to have a cloudy outlook. In the second half, the apparel sector may see some sales recovery for certain listed brands due to a rebound in consumer conditions, but concerns about weakened competitiveness due to structural changes in the industry are expected to persist. The fashion distribution and brand industries are experiencing a downturn, and the original equipment manufacturing (OEM) sector is unlikely to see a strong shift to inventory demand due to an unstable macroeconomic environment. SK Securities researcher Hyeong Kwon-hoon said, "Licensed businesses with ambiguous brand power face structural limitations that will continue to cause difficulties. Although there are differences among listed OEM companies, signals of economic slowdown in the U.S. have been detected, so a true upcycle driven by demand is unlikely." However, he added, "Some OEM companies appear to have entered a recovery phase as front-end inventory adjustments are mostly complete. A selective approach focusing on individual stocks with export growth potential is necessary."

The secondary battery sector is also expected to face a challenging second half. In the first half of this year, secondary battery stocks were weak due to poor earnings and increased valuation burdens. Weak sales of major electric vehicle customers led to reduced operating rates at Korean cell manufacturers, and the North American Advanced Manufacturing Production Credit (AMPC) effect was lower than initially expected. The securities industry points out that investment risks remain in the second half as well. Samsung Securities researcher Jang Jeong-hoon analyzed, "It is difficult to be optimistic about front-end demand and metal price rebounds in the second half. If demand does not rise strongly beyond expectations, there is no reason to aggressively stockpile battery metal materials, so metal prices may continue to adjust, which is burdensome." He added, "Unlike last year, there are many alternative investment options outside the secondary battery industry, such as semiconductor HBM, AI, and K-food, so it will be difficult to attract favorable supply and demand. It will be hard to expect optimistic conditions for the time being."