Corporate earnings gains mask record share of zombie firms, with Samsung and SK Hynix driving most of the improvement

By Kim Byeo-ri, The Herald Business

South Korean corporate profitability improved last year, driven largely by the semiconductor sector, but the share of so-called zombie firms — companies unable to cover even their interest expenses — hit a record 39.9%, a survey found.

The Bank of Korea's "2025 Corporate Management Analysis," released Wednesday, put the sales-to-operating profit margin for 34,456 externally audited corporations — 13,918 in manufacturing and 20,538 in non-manufacturing — at 6.2% last year, up 0.8 percentage points from 5.4% the previous year. The pre-tax net profit margin also rose 1.1 percentage points over the same period to 6.3%.

The sales-to-operating profit margin measures operating profit as a share of total sales, while the pre-tax net profit margin reflects the proportion of revenue remaining before taxes. Both indicators gauge corporate profitability.

By sector, operating profit margins improved across the board — manufacturing rose from 5.5% to 6.9%, and non-manufacturing edged up from 5.2% to 5.4%. The gains in manufacturing were particularly pronounced in the electronics, video and communications equipment segment, where the margin surged from 8.8% to 15.0%, driven by stronger earnings at major semiconductor firms.

"The rise in operating profit margins was attributable to strong sales of high-value-added products and a sharp increase in semiconductor prices, which significantly boosted the operating margins of major semiconductor companies," said Lee Mi-ju, head of the Bank of Korea's corporate statistics team. She added that excluding Samsung Electronics and SK Hynix, the overall corporate sales-to-operating profit margin was identical at 4.9% in both 2024 and 2025, underscoring how much the two chipmakers' earnings recovery shaped the aggregate figures.

In non-manufacturing, the utilities sector saw its operating profit margin climb from 5.8% to 8.3%, helped by electricity tariff adjustments and lower power procurement costs.

A divergence emerged by company size. Large enterprises saw their operating profit margin rise 1 percentage point to 6.6%, while small and medium-sized enterprises saw theirs slip 0.2 percentage points to 4.6%.

The interest coverage ratio — which measures a company's ability to service its financial costs from operating income — improved from 305.8% to 369.8%.

Even so, the share of zombie firms, defined as those with an interest coverage ratio below 100%, rose from 38.5% to 39.9% — the highest level since the statistics series began in 2013.

Overall sales growth slowed to 2.5% last year from 4.2% in 2024, with both manufacturing (5.2% to 3.2%) and non-manufacturing (3.0% to 1.6%) posting declines.

Within manufacturing, petroleum refining and coke (from 1.0% to minus 7.4%) and chemical products (from 4.0% to minus 2.4%) showed the sharpest slowdowns, weighed down by a sluggish petrochemical market amid global oversupply and deteriorating supply-demand conditions from falling oil prices.

In non-manufacturing, construction (from minus 3.2% to minus 9.6%) and transportation and warehousing (from 12.8% to 2.9%) recorded the steepest drops in sales growth.

Construction was hurt by weakening real estate demand and a prolonged slump in ground-breakings that has persisted since 2023, while transportation and warehousing was dragged down by a worsening trade environment and falling freight rates.

Financial soundness indicators improved overall. The debt-to-equity ratio for all firms fell to 98.3% and the borrowing dependency ratio dropped to 27.3%, both down from the prior year's 103.4% and 28.4%, respectively. It was the first time since 2020 — when the ratio stood at 97.3% — that the debt-to-equity ratio across all industries came in below 100%.