South Korea’s top 50 companies saw their inventory surge about 21.4 percent in the first quarter from a year ago, suggesting a weaker performance in cash flow for the companies, mostly for chip and battery manufacturers.

An analysis by the Maeil Business Newspaper showed on Sunday that the inventory held by the country’s top 50 companies by market cap that disclosed inventory details by sales reached 223.2 trillion won ($167.7 billion) in the first quarter. The figure is up 21.4 percent from 183.9 trillion won in the same quarter a year ago.

The analysis suggests that increased inventory has weakened the cash flow from operating activities, an index for the cash-generating abilities of a company. The cash flows under the top 50 companies were calculated at 18.2 trillion won in the first quarter, down 19.4 percent from a year ago.

An increase in a company’s inventory, which implies a rise in unsold assets, usually hampers the cash flow in the company by lifting management costs. A company with rising inventory ends up witnessing its stock price go down, as the market regards the rise in inventory as a sign of weakened demand. The increased size of a company’s inventory can cause its profitability to decrease as it may have to resort to discounted sales to address the inventory.

According to the analysis, memory chipmakers reported the steepest growth in inventory, following a decreased demand in the information and technology sector. Samsung Electronics Co., the world’s biggest memory chipmaker, reported 54.4 trillion in inventory for the first quarter, up 14.3 percent from a year ago. That led to a 39.8 percent fall in its cash flow worth 6.29 trillion won from 10.4 trillion won last March.

SK hynix Inc.’s first-quarter inventory surged 65.3 percent from a year ago to 17.1 trillion won. As the chipmaker specializes in memory with weaker profitability compared with Samsung Electronics, the inventory surge forced it to fall into a net outflow of around 2 trillion won this year from 5.14 trillion won cash flow last year.

Korean brokerage firms, however, expect chip inventory will start to fall between the second and third quarters. “Samsung Electronics’ inventory of memory chips, which was reduced following the production cuts between April and May, is expected to pick up in the second quarter and fall in the third quarter,” said Kim Dong-won, an analyst at KB Securities Co.

Battery manufacturers, which boast high growth potential, have seen their inventory rise. Inventory at Samsung SDI Co. rose 25.6 percent in the first quarter from a year ago to 3.3 trillion won. POSCO Future M Co. posted 1.15 trillion won in inventory, which surged 140.8 percent from the previous year. EcoPro Co. and EcoPro BM Co. rose 135.5 percent and 122.6 percent, respectively, compared with the same quarter a year ago, to report a net outflow of cash worth 300 billion won in the first quarter.

“A chance of recovery in China will likely bring chip inventory and demand for new materials to normal levels,” said Kim Yong-gu, a Samsung Securities analyst.

The inventory of Korea Electric Power Corp. (KEPCO), the country’s chronic debt-ridden state-run utility, increased by 25.6 percent. KEPCO had a net outflow of cash worth 3.45 trillion won. That is a similar level to the same period last year.

Some companies have shown improvements in their cash flow from operating activities, including LG Chem Ltd., in which the cash flow from operating activities came up to 503 billion won in the first quarter from 156.1 billion won a year ago. LG Electronics Inc. saw its cash from operating activities jump 8 times to 1.07 trillion won during the same period.

By Cha Chang-hee and Han Yubin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]