Korean business may seem to be booming on paper, but when the performance of Samsung is excluded, a markedly different picture emerges. Slow domestic consumption and a strong won caused most listed companies in Korea to see revenues and net profits drop until September this year compared to the same period of 2012.
◆ Strong Won, Slow Domestic Spending
The Korea Exchange and the Korea Listed Companies Association on Monday tabulated the earnings of 614 publicly-traded companies that close their books in December and found that their cumulative combined revenues from the first to third quarters of this year totaled W838.57 trillion (US$1=W1,058), up 0.56 percent compared to the same period of 2012.
Their operating profit also rose 5.21 percent over the same period to W49.16 trillion. But combined net profit fell 12.46 percent to W38.39 trillion.
The overall profit structure has deteriorated. For the first nine months, listed companies saw their combined net profit margin fall 0.68 percentage point on-year to 4.58 percent. This was due to the deteriorating profitability of Korea's leading export industries -- IT, cars, steel, petrochemicals and ships -- stemming from a strong won.
The won had risen to the W1,070 level against the dollar by the end of September, and has continued strong. On Monday, it ended at W1,057.2.
Kim Yong-goo, an analyst at Samsung Securities, said Korean companies have adopted a strategy of boosting their size while reducing inventory to survive rather than improving profitability.
◆ Samsung Effect
The number of companies that posted losses grew at the largest rate since the global financial crisis. Some 24.8 percent of the 614 listed companies posted losses, up from 23.1 percent last year. That is not far short of the 26.1 percent that posted losses during the 2008 global financial crisis.
But Samsung Electronics is masking this grim reality as it thrives in the global market. Samsung achieved cumulative sales of W118.66 trillion in the first three quarters and operating profit of W16.33 trillion. Sales were up 13.79 percent compared to the same period of 2012, while operating profit grew 25.62 percent. Net profit also increased 12.12 percent.
But excluding Samsung, combined revenues of listed companies actually shrank 1.32 percent, while operating profit decreased 2.65 percent into the red. Net losses widened from 12.46 percent to 22.2 percent year-on.
The junior Kosdaq market looks no better. Cumulative sales at 621 Kosdaq-listed companies with consolidated financial statements in the first to third quarters of this year rose 10.77 percent to W86.68 trillion. But combined net profit fell 8.88 percent to W2.97 trillion.