Stronger Won Drags Down Operating-Profit Outlook for Korean Listed Companies

Annual operating-profit forecasts for South Korea’s listed companies retreated last month for the first time this year after rising steadily throughout 2026. A stronger won, reflected in a lower won-dollar exchange rate, reduced exporters’ profits when translated back into the Korean currency, weighing heavily on third-quarter earnings estimates for Samsung Electronics Co. and SK Hynix Inc. As the third-quarter reporting season begins with Samsung’s preliminary earnings release on Oct. 8, sector performance is poised to diverge as weaker semiconductor profit forecasts contrast with improving earnings at shipbuilders and refiners.

FnGuide said on Oct. 5 that the consensus estimate for third-quarter consolidated operating profit at 233 listed companies covered by at least three brokerages stood at 25.52279 trillion won ($18.4 billion). That was down 5.2905 trillion won ($3.8 billion), or 2.03%, from 26.05184 trillion won a month earlier. Full-year profit forecasts also slipped 0.4%, to about 985 trillion won ($710.4 billion) at the end of September from about 989 trillion won ($713.3 billion) at the end of August.

Much of the decline in third-quarter estimates came from the semiconductor industry’s two biggest players, Samsung Electronics and SK Hynix. Samsung’s third-quarter operating-profit estimate fell 3.2% over the past month to 10.94939 trillion won ($7.9 billion) from 11.31142 trillion won. SK Hynix’s estimate dropped 1.6% to 7.75495 trillion won ($5.6 billion) from 7.88035 trillion won. Together, the two companies accounted for 4.8743 trillion won ($3.5 billion) of the decline, or 92.1% of the total drop.

The won’s sharp rise helped push down earnings expectations for the two companies because both depend heavily on dollar-denominated sales. The won-dollar exchange rate averaged 1,483 won per dollar in the first half and 1,426 won in the third quarter.

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More companies may report net income that falls short of expectations this third-quarter earnings season even when operating profit beats market forecasts. The won’s sharp rise affects not only core earnings but also valuation gains and losses on foreign-currency assets and liabilities. Judging earnings surprises solely by operating profit may miss broader shifts in corporate profitability.

Yuanta Securities said the average won-dollar exchange rate in Seoul’s foreign-exchange market during the third quarter, from July 1 to Sept. 30, was about 1,426 won, down 5.05% from 1,502 won in the second quarter. Since 2005, there have been only five quarters in which the average quarterly exchange rate fell more than 5% from the previous quarter. That has raised concern that exporters’ profits translated into won will shrink sharply.

Analysts at Yuanta Securities say the third-quarter drop in the exchange rate will have a bigger effect on net income than on operating profit. The timing of how exchange rates feed into earnings differs by line item. Revenue and costs are recorded using exchange rates at the time of transactions, making the average exchange-rate trend during the quarter more important.

Foreign-currency cash, accounts receivable and borrowings, however, are revalued using the exchange rate at the end of the quarter. For companies with more dollar-denominated assets than liabilities, a falling exchange rate reduces the won value of those holdings and produces valuation losses.

The won-dollar exchange rate ended trading in Seoul at 1,352.8 per dollar on Sept. 30, the last trading day of the third quarter. That was down 12.68% from 1,549.4 at the end of the second quarter. Shin Hyun-yong, an analyst at Yuanta Securities, said that historically, in quarters when the won-dollar rate at quarter-end fell more than 8% from the previous quarter-end, 48.0% of companies whose operating profit beat expectations still posted net income below forecasts. This third-quarter reporting season will likely reveal many companies with solid operating profit but disappointing net income.

A stronger won can also boost net income for some companies. Airlines, which carry large foreign-currency liabilities such as aircraft lease obligations and borrowings, can book valuation gains as the won value of those liabilities declines. Korean Air Lines Co.’s third-quarter net profit consensus rose to 501 billion won ($361 million) from 103.7 billion won ($74.7 million) over the past month, nearly a fivefold increase.

Jeon Beom-jin / Oh Hyun-ah, Hankyung.com reporters forward@hankyung.com