Semiconductors and shipbuilding lift Korea profits as broader growth slows
South Korean corporations have shown improved profitability in key sectors, according to the Bank of Korea’s latest report. The all-industry operating margin on sales increased to 5.2% last year, up from 4.6% the previous year. However, when excluding the electronic, video, and communications equipment sector, the operating margin remained steady at 4.3%.
Sector-wise Analysis Reveals Growth in Semiconductor and Shipbuilding Industries
The report highlighted significant growth in the semiconductor and shipbuilding industries, with the operating margin on sales for electronic, video, and communications equipment reaching 14%, a substantial increase from 8.3% in the previous year. Shipbuilding and other transportation sectors also saw a notable rise, with an operating margin of 11.6%, up by 5.2 percentage points.
Challenges Faced by Other Manufacturing Sectors
While the semiconductor and shipbuilding industries flourished, other key manufacturing sectors experienced challenges. Profitability in sectors such as automobiles, steel, and electrical equipment deteriorated, leading to a decrease in operating margins on sales. Small and midsize corporations, in particular, faced a decline in profitability, with medium-sized and small enterprises witnessing a drop in operating margins.
The report also highlighted a decrease in the all-industry sales growth rate, indicating a slowdown in overall growth potential. Excluding the electronic, video, and communications equipment sector, the sales growth rate declined further, pointing towards a challenging business environment for many corporations.
Furthermore, the report revealed a concerning trend of corporations struggling to meet their financial obligations. The share of corporations with an interest coverage ratio below 100% reached an all-time high, with a significant percentage of companies unable to pay their loan interest from operating profits. This situation has led to an increase in the number of “zombie corporations,” which have been unable to meet their financial obligations for three consecutive years.
In conclusion, while some sectors in South Korea have shown improved profitability and growth, there are challenges faced by others, highlighting the need for strategic measures to support the overall health of the corporate sector.
