Q4 Listed Companies' Earnings Outlook 'Cloudy'... Focus on Stocks Expected to Deliver Q4 Earnings Surprises

Samsung Electronics Operating Profit Drops by 330 Million Won from Early Quarter
Utilities Expected to Deliver Earnings Surprise

Estimates of operating profit for domestic listed companies in the fourth quarter have sharply declined by double digits within a month. Following the third quarter, as the outlook for the fourth quarter earnings of listed companies worsens, advice is emerging to focus on companies with strong performance records.

According to DB Financial Investment on the 27th, the combined operating profit of companies with three or more earnings estimates decreased by 11.8%, from 66.6 trillion KRW in early October (early fourth quarter) to 58.8 trillion KRW currently. The main reason for the double-digit drop in the fourth quarter operating profit forecasts of listed companies was the reduction of Samsung Electronics' quarterly operating profit forecast by 3.3 trillion KRW compared to the beginning of the quarter. IBK Investment & Securities recently projected Samsung Electronics' fourth quarter revenue and operating profit to be 76.039 trillion KRW and 7.43 trillion KRW respectively, down 3.4% and 19.0% from the previous quarter. Operating profit forecasts for companies related to secondary batteries are also being revised downward, which explains the large decline in the overall operating profit estimates of listed companies.

This earnings slowdown is attributed to overlapping concerns about the domestic economic slowdown, exchange rate instability, and policy uncertainties under the Trump administration's second term. Business sentiment is also pessimistic. According to the 'January Business Survey Index (BSI)' conducted by the Korea Economic Research Institute targeting 600 major companies, the BSI forecast for January next year recorded 84.6, down 12.7 points from this month’s 97.3. This is the largest decline since April 2020, when COVID-19 was at its peak. Generally, a BSI above 100 indicates a positive economic outlook compared to the previous month, while below 100 indicates a negative outlook.

Given this situation, securities firms have lowered target prices for about six out of ten listed companies. According to FnGuide, among 281 stocks with target prices set by three or more securities firms, 179 stocks (63.7%) had their target prices revised downward as of the 20th, compared to the end of September. Only 100 stocks (35.6%) saw upward revisions in target prices.

The securities industry advises focusing on companies expected to have strong fourth quarter earnings. Companies with solid earnings tend to have better portfolio performance as well.

Seol Tae-hyun, a researcher at DB Investment & Securities, said, "Among 30 companies expected to deliver earnings surprises, 13 actually recorded earnings surprises, with Korea Aerospace Industries, Krafton, and Samsung Fire & Marine Insurance posting high period returns. Stocks expected to perform worse than market consensus had a period return of -13.81%, underperforming the KOSPI index."

Stocks with a high likelihood of earnings surprises include GS Construction, Douzone Bizon, Jeju Air, Pearl Abyss, and CJ CGV. Sectors expected to see earnings surprises include food and beverages & tobacco, securities, utilities, and displays.

According to FnGuide, GS Construction’s fourth quarter operating profit estimate is 94.5 billion KRW, expected to turn profitable compared to the same period last year. Baek Kwang-je, a researcher at Kyobo Securities, stated in a recent report, "Overcoming the large deficit caused by the Geomdan accident last year and normalizing housing performance, a large-scale profit turnaround is expected within a year."

Jeju Air is also expected to see double-digit growth in operating profit in the fourth quarter compared to last year. However, the exchange rate remains a variable. Typically, the airline industry is one of the sectors negatively affected when the exchange rate rises, as lease fees and fuel costs are paid in dollars.