South Korean retailers and food makers are suffering falls in their share prices as the new government is tightening regulations on job security and price stabilization, analysts said Wednesday.
The analysts, however, predicted the fundamentals of the retailers and food makers including their earnings will set the future direction of their share prices, saying the regulation risk will affect their share prices in the short term.
President Park Geun-hye, who took office late last month, has vowed to stabilize prices and solve the problem of irregular workers that has been a burning issue in the country as she begins her five-year term.
Shares of E-mart Co., the country’s largest discount chain operator, fell 2.26 percent Monday when it announced its plan to turn 10,000 irregular workers into regular employees. Monday’s fall continued to Tuesday when the company’s shares closed down 1.16 percent.
E-mart’s move was followed by the labor ministry’s ruling on Feb. 28 that the discount chain operator was illegally using dispatch workers, who E-mart had previously paid a subcontractor for them to work in 146 stores nationwide.
“Sales at E-mart’s local stores are expected to drop about 3 percent this year compared with a year ago due to regulations on the shutdown of the stores twice a month,” Nam Ok-jin, an analyst at Samsung Securities Co., said. “Increased expenses after granting regular employee status to the dispatched workers will likely drive the company’s operating profit to fall 0.3 percent to reach 6 percent during the same period.”
Shares of Lotte Shopping Co. which has Lotte Mart Co., South Korea’s third-largest discount store chain, fell 0.64 percent Monday and 0.78 percent Tuesday.
CJ CheilJedang Corp., South Korea’s largest food company, saw its shares plunge 3.36 percent Monday when it cut the factory price of sugar by up to 6 percent.
Market watchers said the government regulation risk has already been reflected in share prices of retailers and food makers as the regulations were revealed by the presidential transition team in mid-February.
“The first-quarter earnings to be out in April and May will set this year’s direction of their shares,” said Kim Byeong-yeon, an analyst at Woori Investment Securities Co. (Yonhap News)
