Big Businesses Boost Investment Despite Epidemic

Korea's top 100 businesses' operating profits fell 30 percent in the first half of this year due to the coronavirus epidemic, but many boosted investment all the same, especially in research and development.

The Korea Economic Research Institute said Wednesday that the consolidate earnings data of the top 100 companies showed their operating profit fell 28.7 percent on-year in the first half to W33.9 trillion (US$1=W1,113).

But investment rose eight percent to W63.2 trillion, much of it in semiconductors. Samsung Electronics and SK Hynix invested a combined W25 trillion to account for almost 40 percent of the total.

Hong Sung-il at KERI said, "Companies are investing in 5G, autonomous driving and semiconductors, which are promising sectors after the coronavirus epidemic."

The ratio of operating profit to investment during the first half stood at 0.54 times, the lowest in the last five years. That means the amount of money Korea's top 100 businesses earned over the period was only half of what they invested.

Increasing uncertainties due to the epidemic have apparently prompted businesses to hoard cash. The amount of cash assets held by the top 100 companies rose 19.2 percent to W312.6 trillion since 2017. In the past, companies used cash earnings for investment and to repay debts, but this year they appear to have borrowed money only to boost their cash holdings.

Choo Kwang-ho at KERI said, "Corporate investment managed to stay at previous years' in the first half despite COVID-19, but the capacity is expected to weaken gradually due to the prolonged epidemic. Systemic support from the government is needed to allow corporate R&D investment to continue."