As listed companies continue to announce their second-quarter (April to June) earnings, it has been revealed that many stocks that reported 'surprise earnings' exceeding market expectations have seen poor stock performance. This indicates that investors' expectations were quite high. To achieve an 'earnings surprise', a company typically needed to report profits that are approximately 1.5 times the market expectations.
On the 11th, ChosunBiz analyzed the second-quarter operating profits of stocks traded on the alternative exchange, NextTrade, and found that 95 stocks had exceeded the forecasts of securities firms as of the 7th. These stocks had an average price increase of 2.3% based on the after-market (After-Market - 3:40 p.m. to 8 p.m.) closing prices on their earnings announcement date, considering many companies announce their earnings after market close.
To assess the impact of earnings announcements on stock prices, an analysis was conducted comparing performance against the KOSPI and KOSDAQ indices. As a result, among the 95 stocks, 61.1% (58 stocks) recorded excess returns, while 38.9% (37 stocks) fell short of the index's increase.
iM Financial Group is a typical case. iM Financial Group announced its second-quarter earnings after the market closed on the 28th. Although its operating profit surged to 198.6 billion won, about four times higher than the same period last year, its stock price dropped 6.81% based on the after-market closing price. This was 7.23 percentage points lower than the KOSPI index's increase.
The fact that iM Financial Group's operating profit was within expected ranges had a significant impact. Securities firms had projected iM Financial Group's second-quarter operating profit to be around 186.3 billion won, while the actual operating profit was approximately 6.6% above that level. Given that iM Financial Group's year-to-date stock price increase had reached 77.8% at the time of the earnings announcement, many investors sought to realize profits.
Daewoong Pharmaceutical, GS Engineering and Construction, Hanmi Pharmaceutical, HD Hyundai Marine Engine, LG CHEM, among others, also reported second-quarter operating profits that exceeded market expectations, yet the stock price returns on the earnings announcement date were around 3% lower than the index.
So, how much more operating profit must be generated to significantly increase stock prices beyond market expectations? Among the 32 stocks that recorded excess returns relative to the KOSPI and KOSDAQ indices on the earnings announcement date, their second-quarter operating profits were on average nearly 48% higher than market expectations. In simple terms, this means that for investors to engage in buying, the operating profit must be about 1.5 times what the market anticipated.
SNT Energy's second-quarter operating profit was 27.4 billion won, more than double the market expectation of 13 billion won. On the earnings announcement day, which was the 24th of last month, it hit the upper limit (the top end of the daily price limit).
ECOPRO BM also approached four times the market expectation with its second-quarter operating profit (49 billion won) and recorded double-digit returns exceeding the KOSDAQ index increase on the 5th when it disclosed its earnings. Additionally, HD Hyundai Infracore, SK Biopharm, Hyosung Heavy Industries, SK Gas, and Kakao also announced strong second-quarter operating profits, resulting in a surge in their stock prices on the same day.
As the heat of policy theme stocks leading the market cools, the outcomes from corporations during the remaining earnings announcement period are expected to influence stock prices. Huang Jun-ho, a researcher at Sangsangin Investment & Securities, noted in a report, "Although expectations for increased shareholder returns have somewhat dwindled, the index rally will continue to be centered around individual companies' earnings."