Stronger Won to Hurt Korean Companies Next Year

The surge in the Korean won’s value could hinder the performances of Korean companies next year, especially if the won-dollar rate falls to the 1,100 level, a Dong-A Ilbo-commissioned study said yesterday.

In developing next year’s business plans, major domestic companies are agonizing over the won’s surging value and its negative effects on key performance indicators such as revenues and operating profits. Many experts say export-dependent companies will be hit hard if the won rises to 1,100 to the dollar.

Dong-A commissioned Samsung Securities analysts in each industry to forecast next year’s performance for 80 major Korean companies, including Samsung Electronics, the Hyundai Kia Automotive Group, LG Electronics, POSCO and Hyundai Heavy Industries, based on a won-dollar rate of 1,130 won.

Their study indicated drops of 2.8 percent in revenue, 10 percent in operating profit, and 4.8 percent in net profit on average from existing forecasts. The rate of 1,130 was the average forecast for next year by Samsung Economic Research Institute.

○ Stronger won to worsen performance

Dong-A had the Samsung Securities analysts lay out their performance forecasts for next year based on the 1,130 rate. The analysis was then compared with the performance forecasts of the 80 companies presented by Samsung Securities in August and last month.

According to performance forecasts based on exchange rates ranging between 1,050 and 1,213 won (1,186 on average) to the dollar, projected revenues came to 533.3 trillion won (454 billion dollars); operating profits 41.7 trillion won (35 billion dollars); and net profits 40.1 trillion won (34 billion dollars).

In other words, key performance indicators of companies will deteriorate due to the rise in the won’s value by 56 points (0.05 cents) on average.

Apart from the Samsung institute’s forecast, major think tanks and companies mostly expect next year’s won-dollar rate to be in the lower 1,100 range. This is expected to inevitably reduce the price competitiveness of Korean exporters.

LG Economic Research Institute projects next year’s won-dollar rate at 1,140, but the Samsung Group is using the more conservative projection of 1,100 in developing its business plan for next year.

○ Metals, materials likely to be affected less

The effects of foreign exchange fluctuations are expected to vary by industry. While sectors such as metals, materials and pharmaceuticals will see relatively smaller drops in revenues, energy will see a fall of 4.8 percent, electronics 4.4 percent and chemicals 3.8 percent.

In profitability, key sectors for many major Korean companies such as semiconductors, electronics and cars will face tough times. Chip companies including Samsung Electronics and Hynix Semiconductor were expected to rake in operating profit of 12.46 trillion won (10 billion dollars) and net profit of 14.45 trillion won (12 billion dollars) next year.

Those figures, however, are expected to drop to 8.97 trillion won (seven billion dollars), down 28.1 percent, and 12.46 trillion won (10 billion dollars), down 13.8 percent, respectively, if the won-dollar rate is 1,130.

A won-dollar rate of 1,130 will reduce the automotive sector’s operating profits 21.4 percent and its net profits 15.3 percent.

Lee Ki-bong, a senior manager at Samsung Securities, said, “The automotive and electronics sectors will suffer worsening price competitiveness due to a stronger won, and this will result in losses for Korean companies.”

nex@donga.com