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Analysts upbeat on property, tech after Q2's mixed earnings
SINGAPORE-LISTED companies exposed to global trade and the domestic property market could continue to do well in the latter half of 2017 after the overall market turned in a mixed set of second-quarter earnings, analysts said.
Aggregate earnings by Singapore primary-listed companies rose 4.8 per cent year on year in the second quarter, according to results compiled by Bloomberg from 255 companies that had reported quarterly results between July 1 and Aug 10. Of those companies, 139 reported better results, while 110 had poorer results.
Separate preliminary data compiled by The Business Times showed that of the six-month earnings from 305 companies with December year-ends that had reported results as at 8pm on Aug 11, 178 posted better numbers, compared to 124 that posted worse results.
CIMB head of research Lim Siew Khee described the latest earnings season as "mixed so far".
"Some cyclicals have done well. Tech names have also outperformed. . . Pure oil and gas names are still struggling with new orders and earnings will not be good this year," she said.
Electronics manufacturers were the major positive surprise in the latest quarter.
"The standout performer has been electronics," Phillip Securities head of research Paul Chew said. "Have not seen such earnings growth since even the dotcom days."
Venture Corp posted a notably strong quarter, with second-quarter net profit growing 61 per cent to S$69.8 million on the back of improved sales across all its key business segments.
Its performance led RHB to raise its profit forecast for the year by 4.5 per cent to S$241 million, which would represent growth of about 33 per cent. RHB also expects Venture to raise its dividend above its historical 50 Singapore cents per share payout.
"With the continued value creation coupled with new major product launches ahead in Q4 FY17, we expect this positive momentum to likely continue into Q3 FY17," RHB wrote in a report. "We expect a 20 per cent increase in dividends this year given its stellar performance."
RHB is also upbeat for the electronics manufacturing sector as a whole.
"We expect the momentum of growth to continue in the tech sector, due to a few major product launches slated for H2 2017 such as the long-awaited iPhone 8, as well as in preparation for the festive Christmas season sales," RHB wrote in a separate note. "Manufacturing exports data from Singapore to date has been strong, coupled by the strong rise in global demand for semiconductor-related services and goods, as well as electronics."
While Singapore-focused businesses continue to face challenges in their earnings, the property sector is showing signs of improving sentiment.
"Earnings from domestic sectors, in general, have been sluggish," Mr Chew said. "This includes retail, healthcare, construction, building materials, transport and telecommunications. The only domestic sector with better performance has been property. We see inventory winding down and pre-sales healthy."
UOL Group's net profit rose 59 per cent to S$109.4 million in the second quarter on continuing sales and higher selling prices at existing projects.
"Revenue from property development grew 19 per cent year on year to S$221.2 million amid accelerated sales and higher selling prices of existing development projects, The Clement Canopy and Principal Garden," Phillip Securities noted in a report.
Looking past the latest quarter, analysts are generally upbeat about prospects for Singapore property in the months ahead. For instance, average selling prices at UOL's existing projects could increase by an average of 5 per cent, Phillip said.
Mr Chew explained: "Demand is up almost 50 per cent this year, both primary and secondary, while supply is at multi-year lows. This combination will put upward pressure on prices."
The banks gave analysts something to like in their wealth management business, although views were mixed on net interest margins, which remain depressed albeit on a modest recovery trend.
DBS Group Holdings' net profit increased by 8 per cent to S$1.1 billion in the second quarter, while United Overseas Bank's bottom line rose 5.5 per cent to S$845 million over the same period. OCBC Bank's profit grew 22 per cent to S$1.1 billion.
Wealth management was a key driver for growth in fee income.
"Fees from wealth management increased 37 per cent year on year at DBS, 45 per cent year on year at OCBC and 24 per cent year-on-year at UOB,"
UOB Kay Hian wrote in a note. "OCBC and UOB benefitted from a recovery in fund management, where contributions increased 12 per cent and 33 per cent year-on-year respectively."
Analysts also took comfort in signs of stability in asset quality, with the pace of non-performing loan creation easing for all three banks.
The oil and gas sector remained under pressure amid the ongoing global slump, with lower profits at the bellwether rig builders.
Keppel Corp's second-quarter profit fell 22 per cent to S$160 million, while Sembcorp Marine's profit dropped 51 per cent to S$5.6 million.
"Pure oil and gas names are still struggling with new orders and earnings will not be good this year," CIMB's Ms Lim said. "Any order wins may only translate into earnings in H2 2018 or 2019 meaningfully."
READ MORE: Table of H1 results