Samsung Electronics, SK Hynix muscle distorts Korea's manufacturing profit picture

By Kim Byeo-ri, The Herald Business

South Korean corporate sales grew 13.5% in the first quarter, driven by a strong semiconductor cycle — the fastest pace since the third quarter of 2022. The operating profit margin for all companies surveyed hit 13.2%, the highest since the Bank of Korea began compiling the data in 2015.

The Bank of Korea's first-quarter corporate management analysis, released Tuesday, covered 26,067 externally audited companies — 12,962 in manufacturing and 13,105 in non-manufacturing. Their combined sales growth rate of 13.5% was up 11 percentage points from the fourth quarter of last year (2.5%) and the highest in 14 quarters, since the third quarter of 2022 (17.5%).

By sector, manufacturing sales growth surged from 4.7% in the fourth quarter of last year to 21.1% in the first quarter of this year. Non-manufacturing swung from negative 0.3% to positive 3.7%.

The improvement in manufacturing was led by the semiconductor boom. The machinery and electrical-electronics sector jumped from 18.0% to 52.1%, with the electronics, video and communications equipment subsector leaping from 28.9% to 75.7%.

In non-manufacturing, sales growth was driven mainly by transportation and wholesale and retail trade. The transportation sector swung from negative 2.5% in the fourth quarter of last year to positive 8.1% in the first quarter of this year, boosted by rising maritime freight rates amid geopolitical risks in the Middle East and expanding air passenger demand.

"A significant portion of the sales increase came from semiconductors — particularly from the earnings of Samsung Electronics and SK Hynix," said Lee Mi-ju, head of the Bank of Korea's corporate statistics team, while adding that the effect was not limited to the large semiconductor conglomerates. "In the fourth quarter of last year, the sales growth rate for all industries excluding Samsung Electronics and SK Hynix was negative 0.6%; in the first quarter it rose to 4.6%," she said.

Corporate profitability also improved sharply. The operating profit margin for all companies rose from 6% in the first quarter of last year to 13.2% in the first quarter of this year — a gain of 7.2 percentage points and the highest since the series began in the first quarter of 2015.

Manufacturing's operating profit margin nearly tripled, from 6.2% to 18.1%. The machinery and electrical-electronics sector surged from 6.9% to 32.5%, lifted by rising memory chip prices and expanding demand for high-value-added products. The petroleum and chemicals sector also improved, with its margin climbing from 5.7% to 9.7%, aided by higher oil prices stemming from Middle East geopolitical risks and better refining margins.

Non-manufacturing's operating profit margin, by contrast, edged down from 5.9% to 5.7%. In transportation, higher maritime freight rates boosted sales, but rising fuel costs and the use of longer detour routes pushed the sector's operating profit margin down from 9.5% to 7%.

The wide profitability gap between manufacturing and non-manufacturing was also attributed largely to the outsized influence of the major semiconductor companies.

"If you exclude Samsung Electronics and SK Hynix, the manufacturing operating profit margin falls to 6.6%, which significantly narrows the gap with non-manufacturing," Lee said. "Non-manufacturing also showed considerable improvement."

On financial stability, the debt ratio for all companies stood at 87% in the first quarter and the borrowing dependency ratio at 23.9%, both down from the fourth quarter of last year (88.9% and 24.4%, respectively).

Looking ahead to the second quarter, Lee said the semiconductor manufacturing sector was expected to continue performing well on the back of robust AI demand and to lead overall improvement. She cautioned, however, that business uncertainty would persist due to cost pressures from fluctuating raw material prices including international oil prices, the fallout from Chinese oversupply in key manufacturing industries such as steel, chemicals and automobiles, and the impact of US tariffs.