South Korea’s major conglomerates saw their profitability deteriorate sharply this year

Top 10 conglomerates suffer sharp margin erosion

2013.11.21 17:59:19

South Korea’s major conglomerates saw their profitability deteriorate sharply this year. Even the top-notch conglomerates, including the biggest Samsung Group and second-biggest Hyundai Motor Group, posted weaker operating margins. 83 listed subsidiaries except financial firms under the top 10 conglomerates by assets excluding public firms made 36.3 trillion won ($34.2 billion) in operating profit on an individual basis in the first three quarters this year, down 4.7 percent from 38.1 trillion won a year ago, according to corporate information provider Chaebul.com and electric notice system of Financial Supervisory Service Thursday. Their sales came to 526.8 trillion in the January-September period this year, up 1.9 percent from 517.0 trillion won in the same period of last year. But the fall in operating profit drove profitability sharply lower. 

Their operating margin, a gauge of corporate profitability, lost 0.5 percentage points from 7.4 percent to 6.9 percent over the period.
Only SK Group and LG Group of the top 10 conglomerates improved operating margins year-on-year (yoy) between Q1 and Q3 this year. This suggests profitability of the other eight conglomerates including Samsung Group has worsened.
Hyundai Motor Group, POSCO Group, Hyundai Heavy Industries Group, GS Group, Hanjin Group and Hanwha Group suffered declining sales and operating profit simultaneously and both their external and internal stability have deteriorated.
Samsung Group’s 13 listed subsidiaries boosted sales 10.0 percent yoy in the year to Q3 and operating profit 2.2 percent.
But the 13 companies’ profitability has retreated as their operating margin slid 0.8 percentage points yoy to 10.8 percent this year. Samsung Electronics, a company with the country’s top market capitalization, maintains a good 13.8 percent operating margin, but this is still down from 14.5 percent of last year.
Sales of Hyundai Motor Group’s 10 listed subsidiaries dropped 2.2 percent yoy this year and their operating profit 9.6 percent.
Consequently, Hyundai Motor Group’s operating margin retreated 0.6 percentage points from 8.0 percent last year to 7.4 percent this year.
Sales of POSCO Group’s seven subsidiaries decreased 13.5 percent yoy this year and their operating profit 29.0 percent. Their operating margin plunged 1.1 percentage points yoy from 6.1 percent last year to 5.0 percent this year.
Sales of Hyundai Heavy Industries Group’s three subsidiaries dropped 5.3 percent yoy this year, and their operating profit plummeted 58.9 percent.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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