IT, auto firms cut earnings outlook

By Lee Hyo-sik

Information technology, automotive and other local companies that fiercely compete with Japanese firms in global markets are projected to post smaller earnings than previously expected in the first quarter of the year as the weak yen is forecast to hurt their bottom lines.

This lackluster earnings outlook has prompted investors to dump shares of Samsung Electronics, Hyundai Motor and other major exporters, placing a downward pressure on the overall bourse.

Analysts say local companies will likely see their profitability further deteriorate for the foreseeable future in line with the yen’s continued weakness, which has resulted in Korean products becoming more expensive abroad.

According to online financial information provider Fn Guide Tuesday, the first-quarter operating earnings outlook has been lowered for 82 major listed firms. Net earnings are projected to be lower for 84 companies with 77 expected to post smaller revenue.

Hyundai Motor, the country’s largest carmaker, will likely post operating revenue of 2.07 trillion won ($1.9 billion) for the first three months of the year, down 11.3 percent from the previous estimate of 2.34 trillion won.

The operating profit prediction for its sister firm Kia Motors has dropped 9.4 percent to 1.13 trillion won, with that of Hyundai Mobis falling 3.6 percent to 777 billion won.

Dongkuk Steel saw its first-quarter earnings projection plunge 97.7 percent to 500 million won from 21.3 billion, with LG Display and OCI also suffering a double-digit drop in their earnings forecast.

``Automakers, information technology firms and other major exporters here have and will be hit hard by the yen’s continued weakness. Earnings outlooks for those shipping goods overseas could further head downward in the coming days,’’ said Kyobo Securities analyst Kim Hyung-ryoul.

The Japanese currency has weakened by about 20 percent against the greenback for the past three months, with the yen-dollar rate surging to over 90 yen from 75. The won-yen rate used to hover just over 1,400 won. But it has fallen sharply to below 12,000 won, making Korean products more expensive in Japanese and other foreign markets.

Yet some companies are benefitting from the yen’s weakness, Kim said, adding those importing raw materials and industrial products have seen their bottom line improve.

``On the back of the won’s strength against the dollar and the yen, it has become cheaper to bring foreign goods into the country, benefiting domestic market-oriented firms,’’ the analyst said.

Korea Electric Power Corp., the state-run electricity generator, is projected to post operating revenue of 992 billion won in the first quarter, up 31.2 percent from the previous estimate of 756 billion won, thanks to lower costs of importing coal and other raw materials.

With local exporters hit hard by the weakening yen, foreign equity investors in particular have unloaded shares of information technology, automotive and other firms competing with Japanese companies abroad due to fear that their bottom lines will worsen.

Foreign investors’ ownership of Hyundai Motor shares has dropped to 45.7 percent from 45.9 percent late last year, with that of Kia Motors falling to 34.3 percent from 35.4 percent.

``The yen will likely continue to weaken against the dollar and other currencies for the time being as the Japanese government and central bank vow to introduce more expansionary policies,’’ Kim said. ``I think the Korean government and the Bank of Korea should take a more active role in curbing the won’s steep rise and mitigating the fallout of the global currency war on local businesses.’’

Against such a backdrop, the Korea Chamber of Commerce and Industry (KCCI) said Tuesday that it will set up a taskforce to help small- and medium-sized businesses deal with the yen’s ongoing weakness and other foreign exchange-related risks.

It has established a support center at 71 regional chambers across the country to provide consultation services to companies affected by changes in foreign exchange rates.

The KCCI has also signed a memorandum of understanding with Korea Exchange Bank for the latter to lower foreign exchange transaction fees and organize training sessions for small companies.