Lower estimates for profits in Q4

Local brokerage houses are lowering the estimates on the operating profits of steel, telecommunication and chemical companies for the fourth quarter last year, due to the protracted global economic slump.

However, high-tech companies, including display and semiconductor companies, are expected to see an increase in their operating profit during the same period on the back of brisk sales of smartphones.

“The combined operating profit estimate of major domestic firms for the October-December period fell 1.9 percent from five weeks ago. By industry sector, the forecast for steelmakers fell 10 percent, telecommunications companies dropped 9.6 percent and chemical companies went down 8.2 percent from five weeks ago,” said Kwak Byung-yeol, analyst at Eugene Investment & Securities.

“Only the forecasts on operating profits of display, semiconductor and retailer companies for the fourth quarter were revised upward by 6.6 percent, 6.4 percent and 0.5 percent from five weeks ago,” Kwak said.

He also added that the IT industry, which depends heavily on the U.S. economy, saw their estimates for Q4 rise, as the U.S. economy slightly showed signs of growing thanks to increased demand at the end of the year.

“However, compared to the IT industry, the companies that are affected by the Chinese economy still have not seen improvements in their earnings estimates,” said Kwak.

Meanwhile, Woori Investment & Securities predicted that the stock market will unstably fluctuate as they enter into the fourth quarter earnings announcement period.

“As the earlier expectation for the Q4 estimate was too high, it has been revised downward in the recent three months,” said Kang Hyun-chul, analyst at Woori Investment & Securities. “In the past two months, the fourth quarter earnings estimate based on the net income was reduced by 600 billion won [$568.2 million]. However, when excluding the earnings estimate for tech-giant Samsung Electronics, the figure for major listed firms went down by 1.4 trillion won.”

Hyundai Securities expected that the fourth-quarter earnings of major listed companies will drop 7 percent from that of the third quarter.

“Although Samsung Electronics announced the record high provisional operating profit for the fourth quarter, the combined earnings estimate of the 250 major listed companies, except for the financial sector, is rather negative,” said Lim Jong-pil, researcher at Hyundai Securities.

“Although the estimate for the fourth quarter last year is 41.4 percent higher than the earnings estimate of the same period in 2011, it is only because the earnings for the fourth quarter in 2011 were extremely low due to the global economic downturn.”

The estimates on corporate profits of the major listed companies, except for Samsung Electronics, have also been constantly going down since the early fourth quarter, according to Hyundai Securities.

As for the cause of underperformance, the brokerage company cited the slow recovery of the U.S. and Chinese economies and the increased one-time spending in the fourth quarter, such as the expenditures on bonus payments, dividends and incentives.

By Kim Jung-yoon [kjy@joongang.co.kr]