[3Q Earnings Preview] Growing Earnings Expectations... Stock Market Rally Anticipated

Third-Quarter KOSPI Operating Profit Forecast Up 2% from a Month Ago
Semiconductors Lead Upward Revision with Strong Profit Contribution
Upward Revisions Ahead of Earnings Season Boost Forecast Reliability

As the third-quarter earnings season approaches, market attention is intensifying. The third-quarter earnings season, set to begin after the long holiday, is expected to draw more attention than ever, as it could serve as an additional driver for the KOSPI’s further rise. In particular, expectations are growing this year as third-quarter earnings forecasts are being revised upward.

According to financial information provider FnGuide on October 10, the consensus for third-quarter operating profit of KOSPI-listed companies has been revised up by 2% to 69.2903 trillion won, compared to 67.9460 trillion won a month ago.

By sector, expectations for improved performance in displays and related components, as well as semiconductors and related equipment, are supporting the upward revision of third-quarter earnings forecasts. The operating profit estimate for displays and related components has been revised up by 32.6% compared to a month ago, while the estimate for semiconductors has been raised by 8.2%.

In particular, there is strong anticipation for the semiconductor sector, which is leading the KOSPI to new all-time highs. If the robust performance in semiconductors continues, the upward trend in the stock market is also likely to persist. For Samsung Electronics, the third-quarter operating profit consensus has been revised up by 12% from a month ago to 9.8164 trillion won, a 6.9% increase compared to the same period last year. For SK Hynix, the third-quarter operating profit consensus has been raised by 5.1% from a month ago to 10.8016 trillion won, a 53.7% increase year-on-year.

Cho Changmin, a researcher at Hyundai Motor Securities, analyzed, "During the phase of rebounding third-quarter profit forecasts, the upward revision rates were high for displays, semiconductors, utilities, trading companies, and capital goods." He added, "In terms of profit contribution, semiconductors are dominant, while profit forecasts for other sectors excluding semiconductors continue to be revised downward." He further stated, "Both in terms of the index and profits, the leadership of the semiconductor sector is evident. Historically, the market capitalization share of the semiconductor sector within the KOSPI has shown a similar trend to the quarterly profit share of the semiconductor sector within the KOSPI." The market capitalization share of the semiconductor sector expanded from 23.9% at the beginning of the year to 27.9% as of September.

However, uncertainty remains as the upward revision of earnings is concentrated in only a few sectors. Of the 45 KOSPI sectors tracked by FnGuide, only 16 saw their operating profit consensus revised upward compared to a month ago. The consensus for the air transportation sector was revised downward by 9.8%, oil and gas by 9.2%, retail by 3.3%, machinery by 2.4%, and automobiles by 2.3%. Shin Hyun-yong, a researcher at Yuanta Securities, commented, "The profit trend for the second half of the year remains sluggish for stocks other than those in the semiconductor sector," and added, "The absolute number of stocks showing profit improvement is small, and as we approach the third-quarter earnings season, stocks with solid profit estimates are likely to attract more attention."

Nevertheless, this earnings season is being evaluated positively. Yeom Dongchan, a researcher at Korea Investment & Securities, said, "As the earnings season approaches, the reliability of earnings forecasts inevitably increases, and the recent upward revisions in profits are a factor brightening the outlook for the earnings season." He continued, "The upward revision of IT sector earnings is driving the overall upward revision for Korea, and the global IT sector is showing a similar trend. The fact that recent upward revisions in profit estimates are occurring at a global level enhances their credibility."

Solid third-quarter results are expected to serve as an additional growth driver for the stock market. Noh Donggil, a researcher at Shinhan Investment & Securities, analyzed, "The global economy is estimated to have maintained growth in the 2% range in the third quarter, led by the United States. In particular, the restocking cycle in the United States has improved manufacturing conditions in advanced economies through September, supporting the third-quarter KOSPI earnings trend." He further stated, "The momentum for industrial goods demand is projected to bottom out in 2024, accelerate in 2026, and peak in 2028, in line with the global investment cycle. Therefore, the third-quarter earnings season unfolding in October and November is likely to be favorable for the overall stock price direction."