Q4 forecasts for Korea Inc. signal positivity

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The performance outlook for major South Korean companies in the fourth quarter suggests a faster-than-expected recovery, primarily led by an anticipated rebound in key industries such as semiconductors, displays, and shipbuilding. The petroleum industry is also expected to improve after suffering significant losses due to the decline in international oil prices in 2022.

According to the consensus from domestic brokerage firms compiled by the local financial data tracker FnGuide on Thursday, Samsung Electronics Co. is projected to record an operating profit of 3.48 trillion won ($2.7 billion) in the fourth quarter, a 43.2 percent increase compared to the previous quarter, following the gradual recovery of the semiconductor sector.

LG Display Co. saw an operating loss of 662.1 billion won in the third quarter but is expected to turn a profit in the fourth quarter, with 89.2 billion won in operating profits for the quarter. HD Korea Shipbuilding & Offshore Engineering Co. is projected to achieve an operating profit of 194.6 billion won in the fourth quarter, a 182.2 percent increase from the previous quarter when the shipbuilder posted 69 billion won in operating profits.

S-Oil Corp. experienced an operating loss of 160.4 billion won in the fourth quarter of last year but is expected to achieve an operating profit of 474.2 billion won in the fourth quarter of 2023. Korea Electric Power Corp. (KEPCO), which recorded operating losses exceeding 10 trillion won in the fourth quarter of last year, is also expected to turn a profit in the fourth quarter, with an anticipated operating profit of 364 billion won.

Market analysts note that previously deficit-ridden sectors, such as semiconductors and utilities, are leading the overall improvement in operating profits at listed companies compared to the previous year. “With semiconductors benefiting from rising prices and KEPCO reflecting stabilized oil prices and increased industrial electricity rates, a turnaround is expected from the negative growth trend that persisted until the third quarter,” according to Kim Ji-san, head of the research center at Kiwoom Securities Co.

The positive turn in key indicators, including the growth in exports in October after 13 months of negative growth, reflects the anticipated improvement. According to the Korea Customs Service on Wednesday, the nation’s October exports reached $55.08 billion, up 5.1 percent year-on-year and marking the highest monthly export performance in 2023. Analysts predict that corporate performance will recover, particularly among cyclical stocks, as the economy hits bottom. “There is a high likelihood of good performance in the fourth quarter, as exports have been on the rise since October,” Samsung Securities Co. chief of investment information Chung Myung-ji said.

As the third-quarter performance enters its final stage, it was observed that sales decreased compared to estimates, but operating profits increased. According to FnGuide’s analysis of the consensus forecast for 247 listed companies in Korea for which three or more securities firms have provided performance estimates, third-quarter sales estimate was 637.5 trillion won, and operating profit estimate was 43.21 trillion won.

Their actual sales revenue for the quarter was 599.73 trillion won, down about 40 trillion won, while operating profits were 45.62 trillion won, up over 2 trillion won. Market experts attribute the improved performance compared to estimates in the third quarter to companies’ strategies to defend operating profits. “A decrease in sales and an increase in operating profits amid an economic downturn often result from companies reducing costs rather than increasing their sales,” IBK Securities Co. analyst Chung Yong-taek said, citing Samsung Electronics, which chose to deplete inventory to defend margins or reduce various costs, as an example.

But there are some who say companies may not achieve the estimated operating profits in the fourth-quarter performance as the outlook for the fourth quarter is often considered uncertain, even as the economy improves.