More than half of listed SMEs in Korea suffer operating losses in Q1

More than half of small and medium-sized enterprises (SMEs) listed in South Korea suffered operating losses in the first quarter amid the worsening business environment, particularly in the information technology sector, due to the weak economy.

According to a report by Woori Financial Research Institute on Wednesday, 675 non-financial listed SMEs with sales under 100 billion won ($79.1million) logged a combined operating loss of 279.2 billion won in the January-March period on sales of 8.3 trillion won.

The average sales per company were 12.3 billion won and operating loss 410 million won.

Of the entire companies, 46 percent saw their revenue fall from a year ago and 56.3 percent logged operating losses.

The number of SMEs that logged an operating loss in the first quarter went up by 13 percent from the same period a year ago.

The sales growth of listed SMEs dropped to 7.8 percent in the first quarter this year after hitting a historic high of 29.2 percent in the first quarter last year and slowing to 17.7 percent in the second quarter, 15.6 percent in the third quarter, and 12.2 percent in the fourth quarter.

The operating margin declined to negative 3.4 percent in the first quarter. It had dropped to negative 1.3 percent in the fourth quarter last year from 3.2 percent in the second quarter and 7.1 percent in the first quarter the same year.

The companies also saw their profitability worsen, with those in 14 out of the 20 sectors operating in the red in the first quarter.

“The slowing trend of sales growth is similar to that of all non-financial listed companies,” the report said. “However, while the operating margin of all listed companies improved to 3.5 percent in the first quarter from 2 percent in the previous quarter, that of listed SMEs declined to negative 3.4 percent from negative 1.3 percent during the same period.”

The top five sectors with the highest year-on-year operating profit growth were mostly industrial goods or consumer goods affected by economic conditions, including machinery and construction materials, textiles and apparel, auto parts, and games.

The five sectors, on the other hand, with operating profit margins below zero percent were mostly IT-related, including display equipment and parts, handsets, computers and peripherals, semiconductor equipment and parts, and steel and non-ferrous metals.

“The losses are expected to narrow as the sales slowdown that has persisted since the second quarter last year eases and inflationary pressures fall,” according to the report.

The report sees that domestic demand is likely to pick up toward the second half of the year on the back of aggressive stimulus efforts in major economies such as China.

Improved financial market conditions will also ease corporate financing, helping the companies’ sales recover from the slump.

“The downward stabilization of raw material prices is likely to lower manufacturing costs over time and act favorably for corporate profitability,” the report said.