Brokerages up Q3 earnings estimates of LX Hausys, Hankuk Carbon, Hyosung Heavy

[Courtesy of LX Hausys]

South Korean companies with less reliance on China are expected to perform better in the third quarter, mainly those with a high presence in the U.S. amid improving business conditions.

According to market data tracker FnGuide Inc. on Tuesday, 251 listed companies with third-quarter estimates provided by at least three securities firms are projected to post a combined operating profit of 43.42 trillion won ($32.34 billion), down 1.9 percent from a forecast a month ago. Among these companies, however, LX Hausys Ltd., Hankuk Carbon Co, and Hyosung Heavy Industries Corp. have seen improvement in their projected operating profit from a month earlier, along with sales estimates.

LX Hausys’ estimate went up 81 percent to 35.1 billion won from 19.4 billion won within a month on expectations of increased demand for interior design as apartment transaction volumes recover.

The increase also reflects the fact that costs of organic chemicals, a raw material, have stabilized this year after rising prices of the raw material weighed heavily on the company last year due to unstable supply and demand.

“The volume of apartment transactions is increasing after a low point, so LX Hausys’ personal interior business, which has a higher average unit price, will have a positive impact on earnings,” said Kim Se-ryeon, an analyst at EBEST Investment & Securities Co.

LX Hausys’ U.S. subsidiary is also experiencing improved performance as demand for artificial marble continues to grow. LX Hausys also announced an earnings surprise in the second quarter, driven by the growth of its overseas businesses, including engineered stone, flooring materials, and industrial films.

Hankuk Carbon, primarily engaged in carbon fiber and synthetic resin manufacturing, also saw an increase in its estimated operating profit for the third quarter to 13.6 billion won from 9.2 billion won within a month.

In particular, the company announced last month that it will merge with glass fiber products maker Hankuk Advanced Materials Co., which is expected to benefit from both vertical integration and increased net assets. “The fire accident in April disrupted the company’s production capacity, but the company is expanding facilities during the recovery process,” said Eom Kyung-ah, an analyst at Shin Young Securities Co.

Hyosung Heavy Industries is also expected to see increased operating profit in the third quarter due to orders for ultra-high voltage transformers in North America. While Hyosung Heavy Industries’ performance was lackluster in the second quarter due to losses from its equity-method affiliates in the petrochemical sector, the company is expected to improve its performance in the third quarter as Hyosung Advanced Materials Corp. and Hyosung Chemical Corp. have confirmed a bottoming out of conditions. The estimated operating profit for Hyosung Heavy Industries rose by 34.1 percent to 72.3 billion won recently from 53.9 billion won a month ago. The company’s stock price has also shown a strong upward trend since the second-quarter earnings announcement on expectations of global infrastructure investment expansion, reaching a 52-week high of 208,000 won on Tuesday.

Meanwhile, SK hynix Inc. was the stock that saw the most significant change in estimated third-quarter operating profit. A month ago, the securities industry expected the company to post an operating loss of 2.19 trillion won for the third quarter, but the latest operating loss estimate narrowed by 437.2 billion won to 1.75 trillion won. This is because despite the semiconductor industry’s downturn, the company’s shipments of dynamic-random access memory (DRAM) and NAND flash bits reached a record high in the second quarter of this year, and sales of new high-value-added areas such as Double Data Rate 5 (DDR5) chips and High Bandwidth Memory (HBM) increased as investments in AI servers expanded. Despite a generally declining performance in the second quarter, the consensus is that SK hynix will pass its trough as it exceeded expectations for the third quarter.

“The semiconductor and machinery sectors are likely to secure relative downside stability in a period of volatility as share price appreciation is limited despite improving earnings outlook, easing valuation pressure,” said Choi Jae-won, an analyst at Kiwoom Securities Co.