Nearly Half of Companies Miss Q3 Expectations... Semiconductor "Big Two" Drive Operating Profits

A reversal from first-half "earnings surprises"
Risks from the KOSPI's semiconductor concentration grow
Earnings concentration likely to ease next year

Early in this year's third-quarter earnings season, nearly half of listed companies have fallen short of expectations. Samsung Electronics and SK hynix lifted listed companies' operating profits, but the rest failed to meet market expectations. This contrasts with the first- and second-quarter earnings seasons, when six out of every 10 listed companies exceeded consensus estimates.

According to financial information provider FnGuide on October 30, an analysis of 47 listed companies that had reported earnings and for which at least three securities firms had provided earnings estimates found that 22 posted operating profits below consensus. By industry, The Shilla and other wholesale and retail companies (-4.3%), HD Korea Shipbuilding & Offshore Engineering and other shipbuilders (-7.0%), HD Construction Equipment and other machinery companies (-7.7%), Yuhan Corporation and other pharmaceutical companies (-18.4%), and LG Electronics and other durable goods companies (-24.1%) all fell short of consensus.

By contrast, construction companies such as SAMSUNG E&A (51.2%) topped consensus, followed by telecommunications equipment companies such as RFHIC (37.6%), electronic equipment and device companies such as LG Energy Solution (31.9%), diversified industrial companies such as Samsung C&T (13.9%), and semiconductor and related equipment companies such as Samsung Electronics (4.3%). In the first quarter, wholesale and retail companies (705.0%) far exceeded consensus, while in the second quarter, durable goods companies (49.3%) and shipbuilders (38.1%) did so. In the third quarter, however, all of these industries fell short of expectations.

Companies whose operating profits significantly missed consensus included LG Innotek (-51.9%), Hanmi Pharmaceutical (-42.5%), BNK Financial Group (-26.8%), LG Electronics (-24.1%), ISC (-20.7%), iM Financial Group (-14.7%), SGC Energy (-12.1%), RF Materials (-11.0%), ST Pharm (-10.7%), and Hyundai Rotem (-10.5%). LG Innotek posted an operating profit of KRW 94.8 billion, less than half its estimate of KRW 197.3 billion. The company said profits declined because the exchange rate plunged between the time it imported raw materials at a high exchange rate in the first half and their shipment in the third quarter. Kyobo Securities cited deferred milestone payments under Genentech's technology transfer agreement and weak performance at Beijing Hanmi as the reasons for Hanmi Pharmaceutical's shortfall.

Companies that significantly exceeded consensus included LG Energy Solution (131.6%), SAMSUNG E&A (98.6%), LS Marine Solution (74.7%), Hanwha Systems (60.2%), HD Hyundai Marine Engine (50.0%), RFHIC (37.6%), LS ELECTRIC (20.5%), Samsung C&T (13.9%), Daewoo Engineering & Construction (12.8%), and IPARK Hyundai Development Company (11.8%). LG Energy Solution posted an operating profit of KRW 756 billion, more than double its estimate of KRW 326.4 billion. The figure includes KRW 416.9 billion in U.S. Advanced Manufacturing Production Credits (AMPC). Shinyoung Securities estimated that compensation from automaker customers for purchase-volume shortfalls totaled KRW 300 billion to KRW 400 billion, including amounts deferred from the previous quarter. SAMSUNG E&A recorded an operating profit of KRW 500.6 billion. The company said revenue from large-scale chemical and advanced-industry projects had begun to be fully reflected in its results. BNK Investment & Securities estimated that the chemical business included a reversal of approximately KRW 100 billion in provisions.

Semiconductor leaders also drove third-quarter results for listed companies. The combined operating profit of the 47 companies was KRW 210.9308 trillion, 3.8% above consensus of KRW 203.2094 trillion. Samsung Electronics and SK hynix accounted for 90.4% of that total, or KRW 190.7743 trillion. The other 45 companies posted a combined KRW 20.1564 trillion, 0.4% below the estimate of KRW 20.2424 trillion.

Samsung Electronics' third-quarter operating profit rose 783.1% year on year to KRW 107.4405 trillion, 1.4% above consensus of KRW 106.0029 trillion. Revenue was KRW 195.2532 trillion, 2.5% below the estimate of KRW 200.2847 trillion. Its Device Solutions (DS) division, which handles semiconductors, led the results with an operating profit of KRW 106.5 trillion. The finished-goods division, Device eXperience (DX), posted an operating loss of KRW 800 billion. KB Securities said the company had exceeded consensus, which had been lowered due to exchange-rate fluctuations and the recognition of provisions.

SK hynix posted an operating profit of KRW 83.3338 trillion, 8.3% above consensus of KRW 76.964 trillion. Revenue reached KRW 104.6155 trillion, exceeding KRW 100 trillion for the first time on a quarterly basis. Increased sales of DDR5 for servers and the full-scale rollout of HBM4 shipments drove the results. NH Investment & Securities said that improved yields had resolved concerns over HBM quality that had weighed on the market, and stressed the need to focus on structural changes in the memory industry.

Experts cautioned that the market's concentration in semiconductors made it vulnerable to shifts in the sector, but expected industry concentration to ease next year. "The share of leading semiconductor stocks in the domestic stock market has risen to a very high level, both in terms of market capitalization and corporate earnings," said Jo Jungi, a researcher at SK Securities. "Samsung Electronics and SK hynix account for around 50% of the KOSPI's total market capitalization, while their share of projected operating profits within the index has risen to the 70% range. Because the concentration of earnings forecasts for these two companies is higher than their share of market capitalization, changes in semiconductor industry conditions and earnings expectations have a significant impact on the market as a whole."

"It is reasonable to remain open to the possibility of further upward revisions to consensus estimates after the third-quarter earnings season for key industries such as semiconductors," said Han Jiyoung, a researcher at Kiwoom Securities. "The extent to which earnings estimates for the KOSPI overall are revised upward in tandem has become important." She added, "The key to next year's industry strategy is not a wholesale replacement of the current market leaders, but a broader distribution of earnings growth and market leadership. If upward revisions to earnings forecasts spread to non-semiconductor industries while semiconductors continue to make a substantial contribution to profits, the KOSPI's earnings structure is likely to remain centered on semiconductors, while leadership in returns diversifies across industries."

This content was produced with the assistance of AI translation services.