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The fourth quarter is a quarter with frequent earnings shocks. This is because one-off costs are driven and reflected in 4Q. So as the 4Q earnings release season approaches, brokerage firms lower their earnings estimates.
This year is different. Ahead of the 4Q earnings release season, which kicks off on the 18th, there were many companies that were raising their estimates. According to KB Securities, the ratio of stocks whose operating profit estimates for the fourth quarter of last year were raised exceeded 50%, more than those that were lowered (48.7%). In the fourth quarter of 2019, this is compared to the downturned stocks reaching 70%.
It is advised that the securities industry needs to pay attention to companies whose earnings estimates have been raised. Kim Min-gyu, a researcher at KB Securities, explained, “The reason why stocks whose estimates are raised ahead of the earnings season is important is that the possibility of an earnings surprise is high.” For the 256 companies that made consensus (average of performance estimates) at three or more institutions, we looked at changes in earnings forecasts for the last three months.
According to F&Guide on the 17th, 7 of the top 10 companies by market capitalization have raised their operating profit estimates over the past three months. Hyundai Motor, which has risen the most, is expected to increase its 4Q operating profit forecast by 28% to KRW 1.74 trillion. This is thanks to the increased sales of high-margin products such as Genesis and Sports Utility Vehicles (SUVs).
LG Chem is also expected to increase its operating profit estimate by 27.3% to 8167 billion won. The petrochemical division incurred losses due to a fire at the Yeosu plant in Jeollanam-do and a fall in the exchange rate, but the secondary battery division made up for the losses. This is thanks to the increased shipments of medium and large batteries and cylindrical batteries. Other Samsung SDI(737,000 -1.60%)(10.5%), Celltrion(329,000 -6.67%)(19.0%), Kakao(437,500 -3.10%)(3.8%) also increased its operating profit estimate. Naver(306,000 -3.77%)The operating profit estimate was raised by 0.7%, but the sales division was lowered by 25%.
Samsung Electronics whose operating profit estimate has been lowered(88,000 -1.90%) SK hynix(127,500 -2.30%) Samsung Biologics(804,000 -1.47%)All. SK Hynix’s operating profit estimate was also lowered by 10.0% as the cost burden increased due to the mass production of DRAM and the won was strong. It is expected to record an operating profit of 8814 billion won. Samsung Biologics also saw a 7.6% decrease in consensus.
The industry recovers and orders flock
Excluding the top stocks by market capitalization, many chemical companies have raised their operating profit estimates. Kumho Oil(167,000 -2.91%) Korea Oil Painting(281,000 -1.06%) Lotte chemical(301,000 -4.75%) The new estimates for nine chemical companies, including those for three months, were raised on the back of a recovery in the industry. Kumho Petrochemical’s operating profit estimate increased by 67% from October last year. The price of synthetic rubber SBR used in tires and shoes has risen 50.8% compared to the third quarter of last year. Operating profit for the fourth quarter of last year is expected to reach 2164 billion won, an increase of 1119.9% from the same period last year. Yoon Jae-sung, a researcher at Hana Financial Investment, predicted that “the fourth quarter of this year will exceed the consensus despite regular maintenance.”
LG Display(21,050 -2.09%)Also, the operating profit estimate was recently revised up. As the price of LCD (liquid crystal display) TV panels, which account for 17% of sales, rose 97% in the second half of last year, the operating profit estimate surged 302.3% in three months. In 4Q, sales are expected to increase by 10.6% year-on-year to KRW7,102.3 billion, and operating profit is expected to reach 258.8 billion KRW after a successful turnaround. Kim Min-gyu, a researcher at KB Securities, said, “Even if growth is calculated conservatively in consideration of seasonality in the fourth quarter, earnings are expected to improve”
The securities industry was also booming. This is because individual investors started investing in stocks and the transaction value increased significantly. The operating profit estimates for five out of six securities companies with consensus were raised. Kiwoom Securities(147,000 -3.92%)(53.7%) NH Investment & Securities(11,750 -2.49%)(29.8%) Samsung Securities(41,550 -3.48%)(28.2%) Mirae Asset Daewoo(10,100 -1.94%)(24.2%).
LIG Nex1, a defense company(32,850 -0.45%)The new three-month operating profit estimate rose 415.4% as orders increased. At the end of last year, the order balance is expected to increase to 8 trillion won, up 29% from the previous year. Hwang Eo-yeon, a researcher at Shinhan Financial Investment, said, “There is a concern about the won-dollar exchange rate decline due to the nature of exporting companies.
Reporter Choi Ye-rin [email protected]