Earnings Forecasts Lowered for 3 Out of the Top 5 KOSPI Stocks
Top Stocks Plunge: Samsung Electronics -11%, Hyundai Motor -5%
Tariff Threats, Corporate Tax Hikes, and the 'Yellow Envelope Act' -- Mounting Headwinds
As the KOSPI settles into a trading range around the 3,100 level, expectations that corporate earnings will drive further gains are fading. Earnings forecasts for major listed companies continue to trend downward, and analysts say there are few viable measures to reverse the situation amid worsening external conditions.
Adding to the pressure are mounting uncertainties such as the Trump administration's tariff policies and anti-market measures like corporate tax hikes, which are expected to weigh further on the market, leaving little room for earnings improvement.
According to financial information provider FnGuide on the 7th, the combined operating profit forecast for 95 out of the top 100 KOSPI-listed companies with brokerage estimates was tallied at 235.8762 trillion won as of the end of August. This represents a 3.5% decline compared to 244.4963 trillion won at the end of May, just before the launch of the new administration. The trend stands in stark contrast to the KOSPI's surge of more than 18% over the same period, rising from 2,697.67 to 3,186.01.
Many forecasts themselves were revised downward. During this period, 56 companies (58.9%) saw their operating profit forecasts cut, far exceeding the 39 companies (41.1%) whose estimates were raised. With bleak outlooks for major companies, there is also a strong possibility that earnings forecasts for mid- and small-cap partner firms have been lowered as well.
By company, Samsung SDI recorded the steepest downward revision. At the end of May, it was expected to post an operating loss of 112 billion won this year, but in just three months, that figure ballooned to a loss of 1.1732 trillion won. Lotte Chemical, which is undergoing a restructuring of its petrochemical business, also saw its forecast worsen sharply, from a 250.6 billion won loss to a 581 billion won loss.
Other companies that faced darker outlooks included SK Innovation (swinging to a loss), Hanwha Solutions (-72.8%), S-Oil (-41.1%), SK (-39.3%), LG Household & Health Care (-35.4%), SK Telecom (-34.6%), and POSCO Future M (-33.5%).
Top market-cap stocks were no exception. Samsung Electronics' operating profit forecast for this year was lowered from 32.1373 trillion won to 28.6438 trillion won by the end of August, a 10.9% drop. Compared to last year's operating profit of 32.726 trillion won, the estimate is down 12.5%. Hyundai Motor and Kia also saw their forecasts cut by 4.7% and 8.6%, respectively, in just three months.
The downward trend in operating profit forecasts is attributed to factors such as the materialization of tariffs and an economic slowdown. At the end of July, the Trump administration finalized a 15% reciprocal tariff rate on South Korea and imposed even higher tariffs on certain items: 50% on steel and aluminum, 50% on copper, and 25% or 15% on some automobiles.
The impact has already become evident. According to the Ministry of Trade, Industry and Energy's "August Trade Report" released on September 1, exports to the U.S. fell 12% year-on-year to $8.7 billion in August. By item, automobile exports were down 3.5%, auto parts down 14.4%, and steel down 32.1%. With the announcement of tariffs on semiconductors and restrictions on bringing U.S.-made equipment into Chinese plants, even leading companies like Samsung Electronics face mounting risks to earnings.
The problem is that recovery will not come easily. Economic legislation increasing the burden on businesses is a key reason. At the end of July, the government unveiled its "2025 Tax Reform Plan," which calls for a 1 percentage-point increase in corporate tax rates across all tax brackets. The proposal will be submitted to the regular National Assembly session this month. If passed in the plenary session, the top corporate tax rate, including local income tax, will rise to 27.5%, further increasing costs.
The so-called "Yellow Envelope Act" (amendments to Articles 2 and 3 of the Labor Union Act) is also expected to weigh on corporate performance. While the law itself does not directly affect earnings, it could exacerbate strike risks, leading to production disruptions, rising labor costs, and reduced investment.
Kim Dae-jong, a business professor at Sejong University, said, "The corporate tax hike and the implementation of the Yellow Envelope Act will inevitably reduce profits by discouraging investment and increasing costs. If profits decline, companies may move abroad, leading to job losses and pushing the economy into a vicious cycle."
Given these headwinds, the outlook for the stock market in the second half is also unfavorable. Park Seung-young, an analyst at Hanwha Investment & Securities, noted, "Stock prices tend to move in line with market consensus. While the level of consensus matters, how it moves is even more important. Due to seasonal factors, the ratio of earnings downgrades is higher in the third and fourth quarters, so the KOSPI's 3,254 level recorded on July 30 is likely to stand as this year's peak."
sjyoon@chosunbiz.com