Corporate profits forecast to beat estimates

Korea`s corporate profits may beat analyst estimates and prompt a further revision in the benchmark index target, Morgan Stanley said.

"Earnings momentum is still robust," Chanik Park, Morgan Stanley`s Korea research head who raised the target by 9 percent in August, said in an interview in Seoul. "Our earnings expectation for 2010 is much better than before."

While analysts expect Korean companies to boost profits by 54 percent in 2009 and another 32 percent next year, net income exceeded predictions by 18 percent in the first nine months, Park said. Samsung Electronics Co. and Hyundai Motor Co. are among exporters benefiting from a pickup in consumer demand in China, Korea`s biggest trading partner, he said.



The KOSPI index has gained 43 percent this year, set for its best annual performance in four years, on optimism government stimulus measures, two interest-rate cuts and the global economic recovery will spur demand.

The gauge is still Asia`s worst-performing emerging market after the won`s 9.2 percent gain against the U.S. dollar pared the value of exports.

Credit Suisse Group forecast yesterday the KOSPI may rise to 1,900 next year as global economies including the U.S. recover, and advised investors to focus on key exporters, financial and consumer stocks.

"We believe that the KOSPI has room for further appreciation over the next three to six months, narrowing its recent performance gap on the back of continued signs of improvement in OECD economies and solid corporate earnings," analysts led by Seok Yun, head of Korea research at Credit Suisse in Seoul, said in a report.

Korean companies are "cheap" compared with the MSCI Asia Pacific excluding Japan Index, Morgan Stanley`s Park said. The return on equity for the KOSPI is estimated at 13.3 percent, compared with 12.9 percent for the regional gauge, he said. Yet, it trades at a 33 percent discount to the regional measure, higher than the average 25 percent since 2000, he said.

"The discount doesn`t make sense," he said.

Any interest rate increases in Korea will be "quite gradual," with the central bank expected to raise its benchmark rate by half a percentage point in the first half, and 1 percentage point in the second half, Park said.

China`s economy, forecast by Morgan Stanley to expand 10 percent in 2010, will be the main driver for earnings of Korean exporters. China now accounts for 28 percent of Korean exports, from less than 20 percent a decade ago, Park said.

(Bloomberg)