After Samsung, SK Hynix, SGC Energy Emerges as Next Earnings Bet With 70% Upside

Separating Earnings Winners From Losers

Samsung Electronics and SK Hynix have heated up an earnings-driven rally after both posted first-quarter results that beat expectations. With the Kospi index hovering above 6,500, investor cash waiting on the sidelines is rising again. Brokerage firms say strong chip earnings, which have led the market higher, are boosting liquidity and shifting investor attention toward profits. Earnings expectations are also rising for power, energy and construction companies on booming artificial intelligence demand and hopes for an end to the war in the Middle East. Transport-related shares, by contrast, are headed for weak first-quarter results because of high oil prices.

Target Prices Surge for AI, Energy and Construction Stocks

According to the Korea Financial Investment Association, investor deposits totaled 126.04 trillion won on April 23. That was up 20 trillion won, or 18.86%, from three months earlier. Investor deposits are funds left in brokerage accounts to buy stocks or cash left unwithdrawn after stock sales. With the Kospi up more than 50% this year, money that can move into the market at any time is increasing. “In a sustained uptrend, it is better to build positions gradually in market leaders,” the head of research at a major brokerage said. As earnings season gets into full swing, investors should keep a close eye on profit-driven stocks, the executive added.

According to AI-based investment information service Epic AI, average target prices for energy, construction and AI infrastructure shares have risen sharply over the past month. Among Kospi-listed companies, SGC Energy recorded the biggest increase. After saying it plans to operate an AI data center by 2028, the company saw its average target price rise to 81,667 won from 48,000 won, a 70.10% jump in a month. Brokerages estimate the data center's business value at about 1.4 trillion won. Target prices have also climbed for LS ELECTRIC, to 208,363 won from 156,263 won, and LS Eco Energy, to 67,200 won from 54,400 won. Both are projected to post solid earnings this year as exports benefit from surging demand for overseas data centers and communication cables. Growing device demand tied to the AI industry is also lifting the outlook for Samsung Electro-Mechanics, whose target price rose to 579,474 won from 445,000 won, and BH, whose target price increased to 31,583 won from 25,667 won. Samsung Electro-Mechanics is set to supply substrates for Broadcom's AI accelerators starting in the second half. BH is also poised for a sharp earnings increase as it supplies circuit boards for Apple's iPads and other devices.

Hopes for an end to the war involving Iran have also pushed up target prices for DL E&C, to 103,824 won from 61,278 won, Daewoo E&C, to 15,667 won from 9,356 won, GS E&C, to 42,347 won from 27,389 won, and Hyundai E&C, to 211,056 won from 150,556 won. The expectation is that postwar reconstruction of energy facilities will lead to a string of overseas orders. Lee Eun-sang, an analyst at NH Investment & Securities, said orders from the Middle East could reach $140 billion over the next three years. He recommended Hyundai E&C for potential plant and nuclear power orders and GS E&C as expectations rise for its Vietnam business. With geopolitical risks likely to persist even if the war ends, the target price for LIG Defense & Aerospace also jumped to 1,087,500 won from 700,000 won. Mirae Asset Securities is also drawing attention as an earnings play on expectations for buoyant markets and gains from its SpaceX investment. Its target price rose to 69,964 won from 57,500 won. OCI Holdings is also seen gaining after news it will supply silicon to SpaceX lifted its target price to 247,750 won from 198,571 won.

Airlines and Transport Stocks Weighed Down by High Oil Prices

High oil prices and a weak won are dragging down earnings expectations for airline and transport-related shares. Airlines pay for most jet fuel and aircraft maintenance in dollars. Persistently high oil prices since the war broke out are increasing pressure on profitability. Jin Air, whose target price fell to 7,500 won from 9,667 won, recently entered emergency management mode. CJ Logistics is estimated to post first-quarter earnings below expectations as its forwarding business, or international logistics services, weakens and freight rates fall. Its target price dropped to 154,600 won from 171,600 won.

Target prices for Naver and Kakao were also lowered over the past month. Naver's fell 9.95% to 312,474 won from 347,000 won, while Kakao's dropped 5.39% to 76,188 won from 80,529 won. Concerns are growing that spending on AI investments is rising while monetization will take longer than expected. Naver has been unable to accelerate its blockchain business, one of its new growth engines, because legislation on a basic digital-asset law has been delayed. Kakao also needs to find new growth drivers after revenue fell following affiliate asset sales.

Hybe's target price has also declined, falling to 422,632 won from 465,526 won as its cost ratio rises. Kim Min-young, an analyst at Meritz Securities, said first-quarter operating profit will likely come in at 39.8 billion won, below the consensus estimate of 47.5 billion won. He added that the company's earnings could still improve this year on the back of BTS's world tour.

The outlook is also darkening for Hansae, whose target price fell to 15,000 won from 17,500 won, and F&F, whose target price slipped to 93,333 won from 96,857 won. Both are headed for weak earnings amid sluggish conditions across the apparel sector. Lotte Hi-Mart's target price also fell below 10,000 won, slipping to 9,900 won from 10,500 won. Consumer sentiment is improving, but the recovery in the home-appliance business has been delayed. Analysts advise checking for replacement demand during the World Cup season in June and July before investing.

Cho A-ra, Hankyung reporter rrang123@hankyung.com