Korean Inc. headed for a contraction in Q3 led by components and steel, ship makers

The Korean Inc. will likely report contraction in the operating profit for the quarter ending in September on waning profitability from spike in raw material prices and slower external demand, according to brokerage forecast.

According to FnGuide's financial data analysis on 252 firms listed on the Kospi and Kosdaq markets with earnings estimates from three or more securities firms, their combined operating profit in the third quarter is projected at 54.86 trillion won ($41.34 billion), down 7.2 percent from a year ago.

Their combined revenue estimate came to 598.51 trillion won, up 13.4 percent from the previous year. Their combined net income is estimated at 40.59 trillion won, off 20.8 percent from the prior year's 51.23 trillion won.

"The economic slowdown is deepening while commodity prices remain strong,” said Jeong Yong-taek, a senior researcher at IBK Securities. The U.S. dollar softening also would remove some of the foreign exchange factor in the bottom line.

The grim mostly comes from tech majors. Consensus puts Samsung Electronics’ operating profit at

13.54 trillion won in the third quarter, which would be off 14.4 percent from a year ago. Sales are projected at 73.70 trillion won, up 7.7 percent year on year. Estimates put SK hynix’s fall greater at 24.1 percent to 3.17 trillion won in operating income.

Weakening demand for IT devices that has led to a fall in memory chip prices will inevitably drag down Korean chipmakers and IT manufacturers. Samsung Electro-Mechanics and LG Display are expected to come up with disappointing results in the third quarter.

Outlook for shipbuilding and steelmaking sectors is equally dismal. POSCO Holdings and other firms in the metals and mining sector could report earnings plunge of 40.9 percent against a year-ago period. POSCO Holdings is forecast to post 1.64 trillion won in operating profit, which would be nearly halved from 3.11 trillion won in the same period last year, due to falling steel prices from the economic slowdown. Hyundai Steel is projected to see its operating profit drop by 33.4 percent. The shipbuilding sector could report deficit widened to 105.4 billion won from the previous year's 20.2 billion won.

Despite the overall gloomy expectations, some industries, including the lithium-ion battery sector, are expected to fare better with high growth momentum.

L&F, a cathode active materials maker, is forecast to expand its operating profit to 76.6 billion won, up 466.7 percent from a year ago. EcoPro BM’s operating profit for the third quarter is estimated at 117.4 billion won, up 188.6 percent from a year ago. LG Energy Solution is projected to post 351.7 billion won in operating profit in a dramatic turnaround from a deficit of 372.8 billion won in the same quarter a year ago.

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