Earnings recovery key to resolve stock undervaluation: Analysts

2024.03.18 10:24:01 | 2024.03.18 10:24:54

[Graphics by Song Ji-yoon and Han Yubin]이미지 확대

[Graphics by Song Ji-yoon and Han Yubin]



The combined operating profit of South Korea’s top 10 stocks by market capitalization is far behind each of the earnings of Japan’s Toyota Corp. and Taiwan Semiconductor Manufacturing Company Ltd. (TSMC), data showed on Sunday.

According to data from FnGuide Inc., the combined operating profit of the top 10 Korean stocks stood at 35.7 trillion won ($26.7 billion) in 2023, down 54.9 percent from 2022.

This decline came from a years-long downturn in the semiconductor industry, with Samsung Electronics Co. and SK hynix Inc. struggling from a sharp decline in operating profit.

Samsung Electronics’ operating profit plunged 84.8 percent last year from a year ago while SK hynix incurred an operating loss of 7.7 trillion won.

Toyota Motor, on the other hand, is estimated to have achieved an operating profit of 4.9 trillion yen ($32.9 billion) in 2023.

TSMC, the world’s largest foundry, raised $29.5 billion in operating profit last year, which is higher than what the top 10 Korean stocks earned.

The gross profit trajectories among major stocks contributed to the relatively poor performance of the local stock market this year compared to other major countries.

Data from Kiwoom Securities Co. found that Japanese and Taiwanese stocks have seen an increase of up to three percent in their earnings per share (EPS) estimates for the next 12 months since the beginning of the year.

On the other hand, earnings estimates for Korean stocks have managed to rebound in March following the two months of decline between January and February.

Securities analysts suggest that sustainable recovery in earnings is necessary for the Korean stock benchmark to continue rising.

“This year, profits are expected to see significant growth compared to last year, driven by the turnaround of chip manufacturers,” said Jeong Sang-jin, head of equity management at Korea Investment Management Co.

Choi Jae-won, an analyst at Kiwoom Securities, said Korean stocks have been demonstrating enhanced profit forecasts, and if this trend continues, there‘s an opportunity for domestic stocks to catch up with their global counterparts.

Earnings at Samsung Electronics, which accounts for 20 percent of the benchmark Kospi, are critical to boosting investor sentiment.

This year, Samsung Electronics is expected to achieve an operating profit of 32.5 trillion won, a fivefold increase from 2023.

By Cha Chang-hee and Han Yubin

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