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More red ink than red packets

At least 31 profit warnings posted by S'pore-listed companies since the start of the year
Monday, February 8, 2016 - 05:50
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NEW YEAR CHEER DAMPENED: Analysts warn that more O&M sector companies and related firms could end up flagging net losses this year and the next, pointing to deepening capital expenditure cuts by upstream energy giants that will weigh heavy on the bottom lines of smaller downstream players.

Singapore

THIS is not the red investors are looking for - in the lead-up to Chinese New Year, there have been so many profit warnings from Singapore-listed companies that the number averages nearly one for every day since the start of 2016.

It is a reflection of the damage wrought by a prolonged slump in crude oil prices that about a third of these were from offshore & marine (O&M) firms or companies that sell to them, according to bourse filings compiled by The Business Times.

The rest were a mixed bag that included firms involved in commodities, steel, construction, retail and other sectors.

Analysts warn that more O&M sector companies and related firms could end up flagging net losses this year and the next, pointing to deepening capital expenditure cuts by upstream energy giants that will weigh heavy on the bottom lines of smaller downstream players over the coming months.

But for the overall Singapore stock market, analysts still see some relatively bright spots in sectors such as manufacturing where firms may be able to benefit from a weaker Singapore dollar.

There have been at least 31 profit warnings posted by Singapore-listed companies since the start of the year. Out of that, roughly a third, or at least nine warnings, were from companies that are either in the O&M sector or serve the industry.

These include Ezra Holdings, SBI Offshore, Technics Oil & Gas, Gaylin Holdings and Beng Kuang Marine, with several blaming sluggish energy market conditions due to the prolonged crude oil slump.

These O&M firms are not likely to be the last to warn of poor earnings, analysts say, adding that more O&M firms could take writedowns in the coming months following substantial capital expenditure cuts by upstream players.

"The major upstream oil companies have been cutting capex for the second consecutive year, so it's natural that all those along the value chain will see their revenue streams cut by at least 50 per cent," said KGI Fraser analyst Joel Ng.

He said the local market could see more O&M firms warning of net losses or substantial declines in earnings given that "a lot of contracts are ending" this year.

NRA Capital research head Liu Jinshu agreed that the O&M sector would "continue to come under pressure earnings-wise", but said that some stocks were now looking attractive from a valuation perspective. "Keppel Corp, for instance, at less than S$5 is looking rather attractive given that it's trading below book value," he said.

For other sectors in the local stock market, he said one bright spot could be manufacturing, since some manufacturers could benefit from the weaker Singapore dollar this year.

He raised concerns about local banks' exposure to the commodities sector, flagging a potential risk of "some write-offs coming from there".

Property developers may continue to come under pressure because of earnings concerns but most of the downside has been priced in, he said, adding that although the slump in the real estate industry has also affected the construction sector, some civil engineering players could benefit from the development of Changi East. Changi East is a 1,080ha plot of land located east of the present Changi Airport.

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