Korean Inc expected to perform better, domestic-focus stocks to benefit

Brokerage houses have turned more buoyant about Korean Inc. second-quarter earnings from a month ago, betting higher on economy-sensitive steel and chemical sectors.

According to Korean financial market tracker FnGuide Inc. on Wednesday, the combined operating income estimate of 245 listed firms with consensus by three or more brokerages reached 46.9 trillion won ($41.3 billion) as of Monday, up 0.8 percent from a month ago. The total is expected to be 70 percent higher than 27.6 trillion won in combined operating income in the second quarter of last year.

Nearly half of the listed firms – 117 – are projected to deliver higher operating income in the second quarter than the month-ago estimate, led by mainly economy-sensitive stocks in steel, oil refinery, and chemical sectors.

The growth in operating income estimate was high for Daehan Steel (33.1 percent), Kolon Industries (19.4 percent), OCI (17.8 percent), Dongkuk Steel (15 percent), Posco (14 percent), and SeAH Besteel (7.7 percent).

Consumer goods stocks such as those in food and groceries, cosmetics, and fashion sectors are also projected to deliver higher second-quarter operating income. The figure for Aekyung Industrial rose 30.4 percent from a month-ago estimate, Shinsegae Food 30.4 percent, Cosmecca Korea 17.5 percent, and Samyangfoods 9.8 percent.

Higher earnings estimate comes amid gradual economic recovery.

Eugene Investment analyzed that the economy has entered reopening phase and that policymakers are discussing “normalization” after lengthy Covid-19. Consumption and investment are also picking up, prompting economy-sensitive stocks to perform better earnings in the second quarter.

“Stocks in construction, machinery, telecommunications, finance, and consumer goods are expected to be favorable in the second half of the year from momentum perspective,” said Huh Jae-hwan, a strategist at Eugene Investment. “Domestic momentum can be stronger than exports until next year and small- and mid-size stocks and secondary Kosdaq market will likely perform relatively strong.”

Shinhan Investment Corp. was sanguine on government-backed industry stocks in digital and green sectors, stocks with significant investment in companies with high annual average capex growth, shareholder-friendly stocks, and post-Covid-19 consumer stocks.

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