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South Korea Inc. Q1 profit jumps 10%, thanks to Samsung

Outlook solid despite growing North Korean uncertainty, for now

A screen shows the Korea Composite Stock Price Index at the foreign exchange dealing room in Seoul, South Korea.   © AP

SEOUL -- Samsung Electronics led a 10% jump in South Korea Inc.'s earnings in the first quarter from a year ago, with the company accounting for more than one-third of total operating profit of listed entities, the stock exchange operator said Wednesday.

Korea Exchange said that consolidated operating profit of 544 Kospi-listed companies reached 42.8 trillion won ($39.7 billion) in the January-March period, up 9.96% from a year ago. That is largely thanks to Samsung Electronics which posted 15.6 trillion won of operating profit for the first three months this year, equivalent to 36.54% of the combined amount.

Revenue at top-tier listed companies increased 4.82% to 463.8 trillion won during the same period, while their net profit climbed 3.86% to 30.3 trillion won. Operating margin marked 9.23% in the first quarter, up from 8.8% a year ago.

By industry, medical facilities enjoyed the biggest rise in revenue with a 21.58% increase, followed by electrical and electronics with a 15.61% jump. The service sector came third, marking a 11.18% rise in revenue while retail was fourth with a 7.72% growth.

On Wednesday morning, Pyongyang called off ministerial-level talks with Seoul, throwing into doubt the June 12 summit between U.S. President Donald Trump and North Korean leader Kim Jong Un.

Despite Pyongyang's move, the impact on investor sentiment is limited for now. Analysts remain positive about companies' outlook as the recent thaw in relations on the Korean Peninsula is expected to boost earnings further, particularly for businesses in the infrastructure sector that could play a key role in developing North Korea.

"Infrastructure projects are exempted from United Nations' sanctions. Railway projects connecting the two Koreas will be pushed for sooner than expected," said Park So-yeon, an analyst at Korea Investment Securities.

Park said that the Gyeongeui Line and Donghae Line are drawing attention as they were mentioned at the inter-Korean summit between South Korean President Moon Jae-in and the North's Kim held at Panmunjom inside the demilitarized zone last month.

Gyeongeui is a 518km route connecting Seoul to Shinuiju, North Korea's northeastern border city close to China. Donghae goes through the eastern coastline of the peninsula from Busan to Najin, the North's border city near Vladivostok of Russia.

Hyundai Asan, a company which had developed infrastructure and tourism projects in the North, said that it was preparing to resume its businesses, such as tour programs to Mount Kumgang and Kaesong.

"We also plan to push for seven SOC [referring to social overhead capital] projects including railway, telecommunication and electricity which we had won rights to develop in 2000," said Kim Ha-young, a spokesperson for the company.

Credit rating agencies said that improving inter-Korean relations will cut geopolitical risks in South Korea, and help to boost its credit in international financial markets.

"The Panmunjom Declaration is a prelude to more substantive negotiations and diffuses geopolitical tension that gained momentum in late 2017," said Christian de Guzman, a vice president at Moody's Investors Service, in a note, referring to the agreement between the leaders of the two Koreas.

"If sustained, further irreversible actions that promote a smooth rapprochement between the Koreas would lower geopolitical risk and be credit positive for South Korea," he wrote.

The benchmark Kospi rose 0.05% to 2,459.82 on Wednesday, after falling 0.71% a day ago. Samsung Electronics gained 1.32% at 49,850 won, rebounding from a 4.65% loss in the previous three sessions.

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