Share prices of South Korea's largest listed companies are falling short of even the most conservative forecasts from local brokerages. Price targets were raised sharply as the market climbed from late last year through the first half of this year, while prices have since corrected on U.S. rate increases and foreign selling, widening the gap between analyst expectations and market reality.
Among the top 10 stocks by market capitalization, nine were analyzed excluding Samsung Electronics preferred shares, and eight of them closed below the lowest price target set by brokerages, according to financial data provider FnGuide on the 18th, based on that day's closing prices. Only SK hynix (000660) cleared the bar. In other words, current prices are below not just the average target but the most pessimistic estimate on the street.
The widest gap is at SK Square (402340). The stock closed 7.04% higher at 1.079 million won, but would need to rise another 39.0% to reach the lowest target of 1.5 million won. Hyundai Motor (005380) closed at 365,000 won, 37.0% below its lowest target of 500,000 won, while Samsung Biologics (207940) at 1.398 million won would need to gain 28.8% to reach 1.8 million won. LG Energy Solution (373220) has 20.9% of upside to its floor target, Samsung C&T (028260) 19.7% and KB Financial Group (105560) 14.4%.
Semiconductor and information technology shares rebounded on the day, but not enough to close the gap. Samsung Electronics (005930) rose 3.37% to 261,000 won, still 3.4% below its lowest target of 270,000 won. Samsung Electro-Mechanics (009150) gained 4.36% to 1.388 million won, close to its floor target of 1.4 million won but still 0.9% short.
SK hynix was the sole exception. The stock jumped 6.42% to 1.857 million won, above its lowest target of 1.48 million won. That figure, however, comes from a single house, BNK Investment & Securities, and is well below the rest. The average target of 3,305,652 won is still 78.0% above the current price, and the highest target of 4.7 million won is more than triple the lowest. Samsung Electronics also carries an average target of 487,045 won, 86.6% above its current price, while the gaps for Hyundai Motor and SK Square stand at 90.1% and 91.8%. With targets for the same stock varying widely across brokerages and the distance from actual prices growing, analysts say investors face greater difficulty in gauging fair value.
The widening gap reflects a lag between the earnings and valuation expectations built up during the rally and the recent correction in prices, according to analysts. FnGuide data over the past year show consensus targets for Samsung Electronics, SK hynix, SK Square, Samsung Electro-Mechanics, Hyundai Motor and KB Financial Group climbing steeply from late last year through the first half of this year and holding at elevated levels. Actual prices, by contrast, reacted sharply to interest rates and fund flows before settling into a range.
Within the brokerage industry, the reluctance to cut targets is cited as another factor. In a rising market, houses raise targets in quick succession to reflect earnings expectations, but after prices turn they are relatively cautious about slashing earnings forecasts and valuation assumptions, slowing the pace of adjustment. "Targets go up together and fast, but on the way down there is a burden of reversing your own forecast, so firms tend not to cut sharply all at once," an official in the financial investment industry said.
