Tech sector shines in Q3 earnings, banks could be weaker in Q4
Data compiled by BT shows that of 333 companies with Dec year-ends, Q3 earnings were better for 197, and worse for 134
Singapore
THE technology sector recorded stronger than expected growth for this earnings season, even as observers pointed out that the banking sector could possibly be headed for a weaker performance in the current quarter.
Meanwhile, aggregate earnings by Singapore primary-listed companies rose 22.7 per cent year on year in the third quarter, going by the data compiled by Bloomberg from among 480 companies that reported their quarterly results between Oct 1 and Nov 15.
Of those companies, 284 reported better results, and 195 had poorer results. (No comparison was available for one company.)
Separate preliminary data compiled by The Business Times showed that of the third-quarter earnings from 333 companies with December year-ends that had reported results as at Nov 15, 197 (59 per cent) posted better numbers, against 134 that posted worse results. (No comparison was available for two companies.)
CIMB head of research Lim Siew Khee said there were "more misses than beats" this round, led by the industrials and commodities sectors on weak margins.
"However, we are seeing more earnings upgrades in the overall stocks coverage in FSSTI (FTSE-ST Index) led by banks, tech and gaming," she said.
One highlight in the technology space was electronics provider Venture Corporation, which recorded a 135 per cent surge in net profit to S$111.4 million in the third quarter. For the three months ended Sept 30, revenue was up 50.5 per cent year on year to S$1.1 billion.
Its strong performance resulted in RHB raising its forecast earnings estimate for the 2017 fiscal year by 29 per cent to a target price of S$24.10, in a report published on Nov 6.
RHB said: "Signs of slowdown are still yet to be seen. With the bright outlook ahead, coupled with excess capacity to grow, we expect strong NPAT (net profit after tax) growth and margins would be likely to continue."
CIMB's Ms Lim noted that some stocks which stood out in the third-quarter were Genting Singapore and Singapore Airlines (SIA).
Genting's net profit attributable to ordinary shareholders increased 35 per cent year on year to S$143.8 million for the third quarter ended June 30. Revenue rose 8 per cent to S$629.9 million, supported by a stronger VIP and premium mass business volume.
For SIA, Q2 net profit nearly tripled to S$189.9 million, up from S$64.9 million a year ago, on the back of higher revenue, which rose 5.3 per cent to S$3.9 billion.
Ms Lim said: "Genting's returned VIP and sustained mass gross gaming revenue also beat our expectations. With good cost control ahead, we see room for earnings upside."
While technology manufacturing and gaming are likely to post strong results in the next quarter as well, she said, the same cannot be said for banks, which may be weaker quarter on quarter if players such as OCBC and UOB use their excess general-provisions reserves to clean up their books in Q4 2017.
DBS posted on Nov 6 a 25 per cent drop in its third-quarter net profit to S$802 million. The bank almost doubled its specific provisions for bad debts.
A report by Jefferies Singapore on UOB said that the fourth quarter is "likely to experience a few more NPAs (non-performing assets) related to oil and gas accounts". UOB reported on Nov 7 a 12 per cent rise in its third-quarter earnings to S$883 million from the corresponding period the year before, largely due to stronger net interest income and fee and commission income.
Jefferies Singapore analyst Krishna Guha said the bank's performance for the fourth quarter will depend on factors like revenue, costs and level of general provisions.
Meanwhile, the property sector, where there was a spate of en-bloc deals, had a mixed quarter, he said.
"Developers had significant swings in earnings. While CDL's earnings declined 8 per cent year on year, Wing Tai's earnings grew six times. Book-value growth has been positive to flat in the period.
"For Reits, we see a divergence. Larger industrial Reits were able to grow DPUs (distribution per unit) and NAVs (net asset value) on the year, while smaller peers saw a reversal on those parameters."
He said the capital allocation trend among Singapore developers would be something to look out for in the coming quarter. Among office Reits, the focus will be on rental reversion and occupancy trend.
"For industrial Reits, we will look for leasing trend and if same-store occupancy keeps improving or not," he said.
Results from the oil & gas, and offshore & marine sector stayed largely muted - a trend which Suvro Sarka from DBS Equity Research, Oil & Gas, Transport & Infrastructure described as "expected in this quarter".
"Overall, the earnings season showed, at best, that things are not getting worse. But there is no visibility on any turnaround yet. There are some signs of tendering activity increasing from oil majors' side as oil prices have improved in recent months, but it could be a few quarters before that translates to sustainable earnings improvement."
He is more positive on bigger rigbuilders like Sembcorp Marine, where order-win activity looks set to pick up owing to exposure to production platforms and LNG-related projects.
Sembcorp Marine swung back into the black in the third quarter with a net gain of S$2.72 million, from a loss of S$21.79 million a year ago. Revenue dropped 64.3 per cent to S$316.9 million due to lower revenue recognition for rig-building and offshore platform projects.
