Korean exporters scored better than expected in Q2, but H2 outlook uncertain

Korea Inc. generally fared better than expected in the second quarter thanks to a weaker Korean currency against the U.S. dollar that aided exporters and stronger selling prices to cover higher raw materials costs, but their outlook in the latter half is not so assuring in the face of softening global economy.

According to Maeil Business Newspaper’s analysis of 126 firms that had reported second-quarter earnings as of Monday, 68 firms or 54 percent beat expectations for the quarter ended June.

Companies that exceeded market estimates by 10 percent or higher tallied at 44, of which 28 were blue-chip members on the Kospi 200 index. Export-oriented large-cap companies benefited from the weakening in the exchange rate with the U.S. dollar averaging at 1,260 won in the second quarter.

Demand stayed solid despite rising inflation, sending companies to raise selling prices for higher margins.

"Demand in U.S. has stayed strong despite gross domestic product (GDP) contraction for two straight quarters, helping exporters on top of favorable exchange rate," said Kim Hak-kyun, head of Shinyoung Securities’ research center.

Hyundai Motor reported 2.97 trillion won ($22.66 billion) in operating profit in the second quarter, 30 percent above the market consensus, while Kia reported 2.23 trillion won in operating profit, 22 percent higher. Hyundai Motor managed to improve profitability after selling more premium cars such as Genesis models, and Kia rode on favorable foreign exchange rate and higher selling prices of its cars.

Other surprises were chip chemicals firm EcoPro BM who beat consensus by 186 percent, Hyundai Energy Solutions by 140 percent, Doosan Bobcat by 101 percent, POSCO Chemical by 72 percent, and Hanwha Solutions by 72 percent.

Korean exporters may not be so lucky in the second half of this year as external demand has been weakening from strong inflation and higher interest rates.

Asia’s fourth largest economy that heavily relies on exports already saw deficit in trade balance for four straight months in July as imports still in double-digit growth outweighed gains in exports that have slowed in single digit.

Reflecting such concerns, local brokerages have lowered their earnings expectations for Korea Inc. for the latter half.

According to Seoul-based financial data researcher FnGuide, the market consensus of Kospi-listed firms’ earnings for the third quarter was revised down 6.22 percent from a month ago. Their earnings consensus for the fourth quarter was also revised down 9.15 percent.

“The chip sector leads the market corrections, with its consensus down 11.3 percent in a month,” said Hwang Ji-woo, a researcher at IBK Securities.

Market analysts advise investors to seek stocks with clearer outlook such as automobile and lithium-ion battery issues.

According to FnGuide, this year’s operating profit estimate for Hyundai Motor rose 21.5 percent to 10.14 trillion won from the previous estimate of 8.34 trillion won a month ago, while that of POSCO Chemical, a battery materials producer, rose 31 percent to 177.2 billion won from 135 billion over the same period.

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