Despite a booming semiconductor sector, the strengthening of the won is putting pressure on the performance expectations of export companies. The decline in the won-dollar exchange rate has reduced the won-denominated value of dollar-denominated export revenues, leading to changes in profit forecasts for companies. As the operating profit outlook for major exporters decreases, it has contributed to falling stock prices.
According to financial information provider FnGuide on October 14, the combined annual operating profit consensus for Samsung Electronics and SK Hynix has decreased by 21.5 trillion won (3.28%) from 655.7 trillion won in July to 634.2 trillion won this month. While expectations for improved performance due to the semiconductor boom remain, market expectations for corporate profits have diminished.
A similar trend is observed across major export sectors. In the annual operating profit consensus for this year, the transportation equipment and parts sector has been revised down by 3.40%, and the electrical and electronics sector by 3.26% over the past three months. The IT services (-3.84%) and entertainment and culture (-2.24%) sectors have also seen lowered performance expectations. This downward revision reflects not only exchange rates but also overall market conditions.
Exchange rate volatility is a significant factor influencing changes in corporate profit forecasts. Goldman Sachs lowered its forecast for Samsung Electronics' third-quarter operating profit from 112 trillion won to 106 trillion won, a reduction of about 5%. This adjustment reflects the average exchange rate of 1,418 won in the third quarter, which fell below the previously assumed 1,460 won. Although the semiconductor market is performing well, actual profitability in won terms may decrease due to exchange rate fluctuations.
In its semi-annual report, SK Hynix calculated the sensitivity of its foreign assets and liabilities, assuming they remained stable as of the end of June. It found that if the won-dollar exchange rate falls by 10%, its pre-tax net profit would decrease by approximately 4.75 trillion won.
Market analysts believe that the combination of a strong won and cost pressures is reflected in concerns that third-quarter results may be weaker than initially expected. Particularly, the difference in exchange rates at the time of raw material purchases and product sales exacerbates profitability pressures. If raw materials acquired when the won was weaker are sold during a period of a stronger won, the won-denominated revenue may decrease compared to the cost burden.
The burden of a strong won on export companies stems from the reduced won-denominated value of export revenues earned in dollars. For instance, if a company exports 100 million dollars at an exchange rate of 1,400 won, the won revenue would be 140 billion won. However, if the exchange rate drops to 1,330 won, the revenue would decrease to 133 billion won, resulting in a 7 billion won loss in revenue despite selling the same volume at the same dollar price.
Especially for companies with high domestic costs, such as labor and operational expenses, the burden from a declining exchange rate can be more pronounced. If dollar-denominated export revenues remain stable while won-denominated revenues decrease, profit margins may decline. Conversely, companies with a high proportion of dollar payments for imported raw materials and overseas facilities benefit from cost reductions due to a strong won. The actual changes in profitability also vary depending on the proportion of overseas production and whether they hedge against currency fluctuations, as well as the structure of export contracts.
While it is difficult to evaluate performance solely based on the burden of a strong won, foreign investors appear to be assessing the market as falling short of expectations. The Bank of Korea recently explained that semiconductor exports are increasing in both price and volume. The rise in global semiconductor prices and the expansion of export volumes may offset the revenue loss due to the declining exchange rate.
Market experts analyze that the combined effects of weakened corporate profit forecasts due to a strong won, supply and demand instability, and external uncertainties are impacting the stock market. Yang Il-woo, a researcher at Samsung Securities, stated, "In a situation where the momentum for upward adjustments in corporate profit forecasts may weaken due to a strong won and weak semiconductor prices, there may be concerns about a supply gap following the end of major companies' stock buybacks. The market's concerns about the weakening momentum of corporate profit forecasts and the supply gap may be an overreaction."
* This article has been translated by AI.
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