Corporate earnings outlook frozen by ‘belt-tightening’ winds of austerity

On the afternoon of the 23rd, in the Hana Bank dealing room in Jung-gu, Seoul, the KOSPI that closed the transaction is displayed. Yonhap News.

As major countries accelerate tightening to catch up with rising prices, the earnings outlook for major domestic companies is also darkening. The fact that the won-dollar exchange rate broke the 1,400 won level for the first time in 13 years also compounds the financial difficulties. Companies facing the “three peaks” of high exchange rates, high inflation, and high interest rates postpone their investment plans or try to reduce costs such as labor costs.

According to FnGuide, a financial information company on the 25th, the estimated operating profit for the third quarter of the 218 companies listed by KOSPI and KOSDAQ, for which three or more companies offered their earnings forecast securities, was estimated at 51.9 trillion. won them from the 23rd. This is 10.7% lower than the third quarter of last year (57.23 trillion won). This is a decrease of 13.1% from 3 months ago (58.805.5 trillion won) and 3% lower than a month ago (52.62 trillion won).

136 companies (62.4%) have lowered their operating profit forecasts from three months ago. Following sluggish information technology (IT) demand due to the global economic slowdown, Samsung Electronics, the largest listed company by market capitalization in Korea, forecast an operating profit of 12.855 trillion won in the third quarter, down 18.7% from a year in back. SK Hynix’s 3Q operating profit forecast (2.596 trillion won) plunged 45.3% in just three months.

As interest rates rise sharply, there is a growing possibility that the number of domestic companies unable to cover interest costs with operating profit alone will increase. According to the ‘Financial Stability Report’ released by the Bank of Korea on the 22nd, the share of marginal companies from 14.9% last year will increase to 18.6% if the exchange rate and raw material prices rise. This is because domestic companies rely on imports for most of their raw materials, so an increase in the price of foreign raw materials leads to an increase in production costs. Since most of the raw materials are paid in dollars, the price of imports also increases when the exchange rate rises.

As major countries raise interest rates one after the other, companies are tightening their belts. According to the Financial Investment Association, the issuance of corporate bonds (excluding asset-backed securities) from the 1st to the 23rd of this month was 2.821.4 trillion won, down 61.8% from the same period last year (7.3546 trillion won). Companies fearing a recession are also withdrawing their current investment plans and repaying their corporate bonds. Hyundai Steel repaid 220 billion worth of corporate bonds maturing on the 19th in cash. Hanwha also repaid 90 billion won corporate bonds that matured on the 17th in cash.

Businesses believe that the dollar won exchange rate will break through the 1,400 level won for the first time since March 2009, when the financial crisis was at the time of the financial crisis, exacerbating business difficulties. According to the Korea Federation of Business Entrepreneurs’ survey on exchange rate forecasts and the corporate impact on finance managers of 500 export manufacturing companies, companies predicted that their operating profit this year would decrease by an average of 0.6% as the exchange rate forecast exceeded on the exchange rate. original estimate. When companies made their business plans earlier this year, they expected the exchange rate to be 1214 won at the time, but until the 13th, the average annual exchange rate was 1303 won, 89 won in higher.

Companies have started to manage austerity, such as reducing costs, to reduce the risk of exchange rate appreciation. In response to the recent sharp rise in the exchange rate, the largest number of respondents said they had started to cut costs (31.1%), including labor costs. It was followed by an import/export or volume unit price adjustment (24.8%), and by reducing exchange rate fluctuations through product investment (14.0%). 11.4% of respondents answered that there was no specific countermeasure. Choo Gwang-ho, head of FKI’s economic department, said, “The current exchange rate level is excessive considering our economic situation.

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