South Korea’s top 100 large-cap manufacturers have seen their cash flow from operations dwindle over the first quarter, showing a deterioration in business conditions versus the previous quarter, data showed Wednesday.

According to the data from FnGuide, a combined cash flow of the country’s top 100 large-cap companies stood at 16.14 trillion won ($12.47 billion) in the January-March period, down 71 percent from 56.42 trillion won in the previous quarter. Excluding Samsung Electronics, the outlier in the normal curve, the decline is more pronounced with 84 percent from 35.78 trillion won to 5.69 trillion won.

The number of companies that reported surplus cash flow also fell from 58 to 52 over the same period. Among the bad performers are defense and shipbuilding companies such as Hanwha Aerospace, LIG Nex1, Hanwha Systems, Daewoo Shipbuilding & Marine Engineering, Samsung Heavy Industries, and Hyundai Heavy Industries, as well as some holding entities like Hanwha and HD Hyundai.

The deterioration in the first-quarter operating cash flow is attributed to a degradation in the profit structure where money is tied up in inventory or accounts receivables.

Another worrisome factor is a sharp rise in cash flow from financing in the first quarter. The net cash flow that reflects all business dimensions of operation, investment and financing increased from 10.71 trillion won in the fourth quarter to 25.29 trillion won in the first quarter, indicating more money was borrowed from lenders or raised from investors.

A decrease in cash flow from financing activities is usually recognized as positive. Companies that significantly increased their borrowing ahead of a rate-hiking cycle may see their performance go from bad to worse in debt ratio.

Analysts forecast grim outlook for business performance of the top manufacturers. The market consensus for the combined net profit of Kospi companies this year may decline by 5 percent or so from 195 trillion won to 185 trillion won, said Meritz analyst Lee Jung-yeon.

The operating profit margin of Kospi-listed firms could fall to the 6 percent range from the previous 8 percent level due to a downturn in the economic cycle, KB analyst Lee Eun-taek forecast.

By Kang In-seon and Minu Kim

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