Rising won divides big caps

The won is getting a mixed response from the market as it continues to gain against the greenback in light of the potentially devastating effect exchange rates can have on local big caps, and their influence in general on Korea’s heavily export-oriented economy.

According to a report by Woori Investment & Securities, if the value of the local currency adds 50 won ($0.05) to stand at 1,058 won to the dollar, up from 1,108 won at present, Korean Air would see its annual net profit jump 338 billion won while Samsung Electronics’ net profit would fall by a whopping 2 trillion won.

The brokerage said Korea’s flagship airline would be the biggest gainer and LG Display the biggest loser in such an eventuality.

It said Korean Air is forecast to post 408.1 billion won in net profit this year, but that this would grow by 82.8 percent if the won climbs, netting it an additional 338 billion won.

Meanwhile, the panel maker is estimated to reap 348.2 billion won in net profit, but the securities firms believes this would plummet by as much as 95.4 percent to 16.2 billion won if the won keeps gaining in strength.

Samsung Techwin, Kumho Petrochemical, KPX Fine Chemical, Daewoo Shipbuilding & Marine Engineering, SK Innovation and Samsung Electronics are among those companies that would suffer heavy losses.

Samsung Electronics is forecast to rake in 21.6 trillion won in net profit this year, but nearly 10 percent of this could evaporate if the won climbs by this degree. Korea’s two largest automakers, Hyundai Motor and Kia Motors, would shed 6 percent and 7.5 percent, respectively, the report said.

“The car industry is always among the hardest hit when the won strengthens because it is so dependent on exports,” said Kong Yeong-un, an executive at Hyundai Motor. “We’ll adopt a more conservative approach next year based on how analysts predict the exchange rate is going to move.”

Along with air carriers, a stronger won spells good news for shippers and steel makers as it means cheaper bulk imports of petroleum and other raw materials.

“When the local currency gains ground against the dollar, more Koreans travel overseas,” said Na Deok-seung, an analyst at Daishin Securities.

Shipping firms benefit from a stronger won as they hold most of their debt in foreign currency, meaning it starts to drop when the won gains ground.

Companies focused on the domestic market, such as those in the telecommunications and retail sector, remain largely unaffected by the changing exchange rate, Na said.

He added that construction firms are also more immune to the fluctuating rate as they compete with Japanese and European firms for projects, so the strength of the won vis-a-vis the yen and euro are more important than how it fares against the dollar.

“Companies control risks related to fluctuating foreign exchanges by currency hedging,” said Kang Hyun-cheol, a chief investment strategist at Woori Investment & Securities. “If the won’s value goes up slowly against the dollar, it shouldn’t be a major problem for them.”

The local currency ended at 1,095.80 won against the dollar yesterday, up 1.2 won from Friday’s close.

By Lee Ka-young, Kim Soo-yeon [mijukim@joongang.co.kr]