A sharp drop in the won-dollar exchange rate is darkening the earnings outlook for South Korea's exporters.
Yuanta Securities Korea said in a report on the 7th that the third-quarter average exchange rate would fall to 1,415 won, assuming the day's rate of 1,350 won holds as September's average. That would be 87 won below the previous quarter, the largest quarterly decline in the past decade.
At moderate levels, a lower exchange rate helps curb inflation and lift domestic purchasing power by reducing the cost of imported crude oil and raw materials. Industries that rely heavily on imported inputs — airlines, utilities, steel, chemicals and food and beverages — also face lighter cost burdens.
The problem comes when the won strengthens faster than companies can absorb. Exporters see the won value of their revenue shrink even when dollar sales are unchanged.
Automakers and chipmakers, which depend heavily on exports, are especially exposed. Hyundai Motor and Kia gained an estimated 3.7 trillion won and 4.3 trillion won in additional operating profit, respectively, from the won's slide between the first quarter of 2023 and the second quarter of this year, according to the report. On a quarterly average, that amounted to 260 billion won for Hyundai Motor and 310 billion won for Kia. With the currency now moving the other way, those gains are increasingly likely to reverse.
"Because a long-running currency trend has shifted abruptly, earnings estimates could be revised downward," said Kim Yong-min, an analyst at Yuanta Securities Korea.
Chipmakers are also in the path of a stronger won. Domestic memory makers are paid in dollars but incur about 20% of their revenue in won-denominated costs. As a result, a stronger won erodes profit more sharply than revenue. Nomura Securities estimated that a 10% appreciation of the won would reduce operating profit at Korean memory makers by about 12%.
Citigroup also cut its price targets for Samsung Electronics and SK hynix to 430,000 won and 3 million won, respectively, to reflect the currency pressure. It lowered its third-quarter operating profit estimate for Samsung Electronics by 10% to 104.1 trillion won from 115.5 trillion won, and trimmed SK hynix's by 3% to 74 trillion won from 76.7 trillion won.
