Korean large firms increase R&D spending despite revenue downturn

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South Korea’s top 10 Kospi companies saw their revenues decline in the first half of this year, but their research and development (R&D) investments increased, making proactive moves to secure future growth engines.

According to Maeil Business Newspaper’s analysis of the semi-annual reports from the top 10 Kospi companies by market capitalization (Samsung Electronics, LG Energy Solution, SK hynix, Samsung Biologics, POSCO Holdings, Samsung SDI, LG Chem, Hyundai Motor, Naver, and POSCO Future M) on Monday, their combined revenue fell by 5.6 percent on year to 321 trillion won ($240 billion). In contrast, their combined R&D expenses went up 11.1 percent to 20.96 trillion won.

The average ratio of R&D investment against revenue also experienced an upward trajectory, reaching 7.3 percent from 6.2 percent a year ago.

Companies with substantial R&D investments are poised for long-term value appreciation. According to data from LG Economic Research Institute, businesses heavily invested in R&D are more likely to sustain high growth and business performance in the future, leading to a higher increase in revenue and price-to-earnings ratio (PER) compared to companies with lower R&D investments.

Notably, the industry sector exhibiting the most prominent increase in R&D expenditure was the lithium battery sector. LG Energy Solution, buoyed by a significant surge in revenue compared to the previous year, raised its R&D investment by 24 percent from 378.4 billion won to 470.7 billion won. Likewise, LG Chem elevated its investment from 786.5 billion won to 982.5 billion won during the same period.

LG Energy Solution’s R&D focus in the first half of this year was directed toward material development for the joint venture entity Ultium, created in partnership with U.S. carmaker GM. The Korean company reported approvals for the production of NCM811 cathode materials with an 86 percent nickel composition, as well as the development and part approval of a mass production process for artificial graphite.

LG Chem concentrated on advanced materials, particularly in the development of electrodes and separator materials for electric vehicles. The company revealed ongoing endeavors in its semi-annual report, including the development of high-capacity and long-lasting cathode materials, as well as highly stable differentiated separators.

The petroleum chemical sector also garnered attention for its efforts in producing high-value-added products. Notable examples include recycled ABS materials, super absorbent polymers (SAP), and NBR latex.

Hyundai Motor also substantially increased its R&D investment, fueled by a robust second-quarter performance. The company augmented its R&D budget by 258.5 billion won compared to the previous year. Particularly notable were the achievements in the electric vehicle sector, with enhancements to the physical structure and algorithms of the PE system, the engine equivalent in internal combustion vehicles. These improvements led to increased efficiency, cost savings, and durability, the company said.

R&D investment trends diverged in the semiconductor industry, which faced significant revenue declines due to global market conditions. Samsung Electronics increased its R&D spending by around 13 percent, from 12.18 trillion won to 13.78 trillion won. In contrast, SK hynix’s R&D expenditure for the first half of this year fell by about 13 percent, from 2.41 trillion won to 2.09 trillion won.