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More earnings misses than hits in Q2: UOB Kay Hian

Tuesday, August 18, 2015 - 10:43
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In the banking sector, both DBS and OCBC exceeded market forecasts in Q2.

IT was "another reporting season to forget", was how the Q2 2015 UOB Kay Hian Report Card released on Tuesday described the second-quarter earnings period.

The report said results in Q2 2015 continued to be lacklustre, with 39 per cent of the results from companies under its coverage missing the mark (versus 42 per cent in Q1).

There was just a slight cheer with the number of hits rising to 15 per cent in Q2, compared with 6 per cent in Q1, which was a low since 2009.

Regarding bottom lines, UOB Kay Hian said: "Most sectors continued to suffer earnings contractions, with significant cuts seen in aviation, oil services and shipyards.

"Following the weak set of results in 2Q15, we have cut our 2015 market EPS (earnings per share) growth forecast to 1.1 per cent (previously 7.4 per cent) and largely maintain our 2016 forecast at 10.2 per cent. Consensus forecasts remain on the downtrend."

Companies' top-lines also remained under pressure, while margins trended lower in 2015, it said.

"We have lowered our top-line forecasts across all sectors under our coverage. Other than banks, which enjoyed a slight uptick in Q2 turnover adjustments, all other sectors saw downgrades in revenue forecasts, with significant declines seen in oil services and supply chains.

"As for margins, EBIT (earnings before interest and taxes) margins in Q2 declined slightly to 6.5 per cent from 6.9 per cent."

In the banking sector, both DBS and OCBC exceeded market forecasts in Q2.

Among telcos, StarHub was ahead of Singtel and M1 due to lower handset subsidies.

Oil services (with the exception of Pacific Radiance) were unsurprisingly weak in Q2, with shipyards reporting a mixed set of results.

In the property sector, both CapitaLand's and City Developments' results were below expectations due to timing issues, while most Reits performed in line with expectations.

In the transport sector, ComfortDelGro delivered a solid set of results, recording broad-based revenue growth across its bus, rail and taxi segments, while SMRT's Q1 results were disappointing as train operations were loss-making and costs stayed high.

Overall, UOB Kay Hian finds the Straits Times Index's (STI) 2016 price-to-earnings ratio of 12.8 times "inexpensive", but the environment remains "volatile (with a) lack of catalysts".

"With pressure on top lines and margins likely to persist for the rest of the year, we foresee that the STI will be range-bound," it said.

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