About 60% of listed companies’ Q1 earnings exceed market consensus

Hanwha Aerospace Co. in Changwon, South Gyeongsang Province [Courtesy of Hanwha Aerospace]

About 60 percent of listed companies in South Korea reported first-quarter earnings that exceeded market expectations, with some analysts cautiously saying that the worst may be over and results could start to recover.

According to financial data tracker FnGuide on Monday, 58 companies posted operating profit that exceeded market consensus in the January-March period. That’s about 59 percent of the 98 firms that had earnings consensus released by more than one brokerage house among all listed companies that announced results during the period until Thursday.

“First-quarter earnings are not worse than expected, probably because a gloomy outlook had prevailed,” said Yang Hae-jeong, an analyst at DS Investment & Securities Co. “First quarter is more likely to be the lowest point for the earnings of Kospi-listed companies. Exports, which impact the most on corporate profits, are not expected to worsen further as U.S. and Chinese economies are unlikely to weaken significantly. Stabilized interest rates and easing oil price hikes are also favorable factors for companies in terms of cost.”

Hanwha Aerospace Co., a defense unit of Korea’s Hanwha Group, exceeded the market consensus the most by 130.5 percent with an operating profit of 228.5 billion won ($173 million) in the first quarter. Another Korean defense company, LIG Nex1 Co., also posted an operating profit of 68.2 billion won, outperforming expectations of 37.1 billion won.

LG Electronics Inc. also surprised the market with its earnings. The company’s first-quarter operating profit was 1.5 trillion won, exceeding the market estimate of 1.12 trillion won. It even surpassed Samsung Electronics Co.’s profit of 640.2 billion won for the first time since the adoption of the International Financial Reporting Standards in 2009. Samsung Electronics saw its earnings fall 36 percent below market expectations due to the worsening memory chip sector, its mainstay business.

LG Energy Solution Ltd., the world’s second-biggest battery maker, also logged an operating profit of 633.2 billion won, exceeding market estimates of less than 500 billion won. Part of the earnings came from manufacturing tax credit of 103 billion won under the U.S. Inflation Reduction Act.

Hyundai Motor Co. and Kia Corp. also announced an earnings surprise. Hyundai Motor and Kia delivered 3.59 trillion won and 2.87 trillion won in operating profit, respectively, 23 percent and 24 percent each above the market forecast.

Hotel Shilla Co. released an operating profit of 34.5 billion won for the first quarter, higher than market expectations of 20.4 billion won, as its duty-free business improved with China’s reopening of borders. Entertainment label Hybe Co. posted an operating profit of 52.5 billion won, 12.4 percent higher than market expectations, prompting analysts to raise its stock’s price targets.

In contrast, there are views that earnings have not reached the bottom yet. In the first quarter, 47 out of 98 listed companies saw their earnings decline.

“Many of the companies saw an increase in profits while their sales did not increase much, which means profits were derived from cost reduction,” said Yoo Seung-min, head of the investment strategy team at Samsung Securities Co. “It is questionable whether they will continue to deliver good results in the second and third quarters solely based on cost management amid a sluggish economy.”