Second-Quarter Earnings Season Approaches: Which Stocks Deserve Attention?

Expectations for Second-Quarter Earnings Season Remain Low
KOSPI Operating Profit Consensus Slightly Lower Than a Month Ago
Kakao Pay Sees Largest Upward Revision
SK Hynix and Samsung Electronics Show Contrasting Trends

As the KOSPI, which has surged rapidly, enters a period of consolidation, corporate earnings are expected to be a key factor for further gains. Since the second-quarter earnings season will begin next month, market attention is likely to focus on second-quarter results.

According to financial information provider FnGuide on June 30, the consensus for KOSPI operating profit in the second quarter (the average of securities firms’ forecasts) is 65.1343 trillion won, up 7.7% from the same period last year. Compared to a month ago, this figure has been revised downward by 0.4%. Seo Taehyun, a researcher at DB Securities, said, “Typically, second-quarter operating profit forecasts are revised upward from the beginning of the quarter until just before the earnings announcement, so this year’s low level of expectations for earnings improvement stands out.”

By sector, the outlook for marine transportation operating profit has been raised the most, with a 9.7% upward revision compared to a month ago. Other sectors that have seen higher expectations compared to a month ago include commercial services (4.1%), shipbuilding (3.2%), metals and minerals (2.4%), transportation infrastructure (2.2%), pharmaceuticals (1.8%), and hotels and leisure (1.3%). In contrast, the electronics equipment and devices sector saw the largest downward revision, with a 12.4% decrease, while oil and gas (-8.7%), game software (-6.6%), gas (-3.6%), chemicals (-3.1%), durable consumer goods (-2.5%), air transportation (-2.3%), and automobiles (-2.0%) also experienced lower expectations.

There are predictions that sector-specific performance differentiation will become more pronounced. Cho Changmin, a researcher at Hyundai Motor Securities, said, “Sector-specific forecast differentiation continues, and sectors that performed well in the first-quarter earnings season are also showing resilient forecasts for the second quarter. We can expect to see clear differentiation in sector performance in the second quarter, similar to the first quarter.”

By stock, among the 201 stocks with consensus estimates from at least three institutions, 76 saw their operating profit estimates revised upward compared to a month ago, while 83 were revised downward.

The company with the largest upward revision in expectations was Kakao Pay. The consensus for Kakao Pay’s second-quarter operating profit is 5.3 billion won, up 16.3% from a month ago. Previously, Kakao Pay turned a quarterly profit for the first time since its listing in the first quarter. The company is expected to maintain profitability in the second quarter as well. In addition, HMM (14.6%), DB Hitek (13.5%), and Lotte Tour Development (13.5%) also saw significant increases in expectations compared to a month ago.

On the other hand, the company with the largest downward revision in the second quarter was LG Innotek. The consensus for LG Innotek’s second-quarter operating profit is 63.5 billion won, down 13.6% from a month ago. Shinsegae International (-11.7%), Pulmuone (-10.7%), and Krafton (-10.1%) also experienced relatively large downward revisions. Oh Gangho, a researcher at Shinhan Investment & Securities, said, “We have lowered LG Innotek’s second-quarter operating profit estimate by 36% compared to the previous estimate,” citing off-season sales decline leading to weaker profitability, intensified supply chain competition, and a drop in exchange rates as the reasons for the downward revision.

SK Hynix and Samsung Electronics showed contrasting trends. The consensus for second-quarter operating profit is 681.67 billion won for Samsung Electronics and 883.17 billion won for SK Hynix. Compared to a month ago, Samsung Electronics was revised downward by 1.6%, while SK Hynix was revised upward by 0.8%.

As the KOSPI, which had been climbing steeply, corrected after surpassing the 3,100 mark, the importance of corporate earnings is expected to come to the fore. Yeom Dongchan, a researcher at Korea Investment & Securities, said, “Looking at Korea’s historical 12-month forward price-to-earnings ratio (PER), 8 times is near the bottom, 12 times is at the top, and the median is 10 times. The KOSPI at 3,100 corresponds to 10.5 times, which is not at a level to discuss overvaluation, but the undervaluation appeal has been diluted.” He added, “With Samsung Electronics’ earnings announcement scheduled for early July, the downward revision of second-quarter profit estimates cannot be overlooked.” Researcher Cho Changmin also pointed out, “With valuation pressures relatively high in the stock market, sensitivity to earnings will rise again, because only earnings can justify higher valuations.”