Covid-19 rains on Singapore's stellar earnings season parade

Singapore

CORPORATE earnings for the October-to-December period produced decent digit gains, with two in three companies in the black. But investors are likely to look past that as they nervously await the next development in the worsening Covid-19 outbreak and how it might affect the listed companies. This and a plunge in oil prices have sparked recession fears.

The total earnings of 306 companies on the Singapore Exchange which issued their quarterly scorecards as at last Thursday rose 71.2 per cent to S$10.8 billion from a year earlier, according to data compiled by The Business Times.

Overall, there were more beats than misses, as well as "positive surprises" particularly in the capital goods, commodities and semiconductor sectors which CGS-CIMB Research analyst Lim Siew Khee attributed largely to conservative forecasts on the back of the prolonged China-US trade feud.

"Beats/misses ratio stood at 2:1, the strongest since 2013 but sentiment was overshadowed by Covid-19," said Ms Lim.

Based on BT's data, among the companies that were in the black, more of them had higher profits (113) compared to lower profits (61).

Of those that suffered losses, 31 sank deeper into the red while 40 narrowed their losses. But more swung from black to red (34) compared to those that turned losses into profits (26) over the three-month period.

Singapore's three banking stalwarts - DBS Group Holdings, OCBC Bank and United Overseas Bank which have a combined market value of more than S$120 billion - produced stellar results. OCBC chalked up the highest year-on-year net profit growth in percentage terms, buoyed by strong contributions from subsidiary Great Eastern Holdings and trading gains. "Profitability and capital buffers have improved, with their asset quality and liquidity remaining strong," said Moody's Investors Service. Those metrics, however, could be challenged in an environment of low interest rates and a prolonged outbreak.

Singapore real estate investment trusts (S-Reits) - favoured for their relatively high yields - largely fared in line with expectations. OCBC Investment Research said that while S-Reits will not be immune to the current vagaries, they will stay resilient, with the exception of the hospitality sub-sector which is hardest hit by the pandemic.

In the commodities space, Wilmar International's quarterly profit surged 120 per cent boosted by the tropical oils, and oilseeds & grains segments and the absence of impairment loss from sugar segment. It also declared the highest dividend payout (total dividend paid and proposed for FY2019 at 12.5 Singapore cents per share) since its 2006 listing.

Plantation company Golden Agri-Resources' better showing was led by higher crude palm oil (CPO) prices and substantial net fair value gain on financial assets. On the other hand, First Resources missed consensus estimates mainly on lower-than-expected CPO average selling price.

In the capital goods realm, SIA Engineering "surprised positively" owing to tax provisions and stronger performance by the parent Singapore Airlines (SIA) but the outlook now appears bleak as the virus hurts travel demand and by extension, its airframe, line maintenance and technical ground handling business. Similarly, SIA which fared well over the quarter is also facing turbulent times.

China Aviation Oil's quarterly outing was boosted by stronger gross profit margins and cost controls while a stronger oil and gas segment and lower tax worked in favour of CSE Global over the period.

In the semiconductor space, AEM Holdings and Frencken Group outperformed with a tight rein on costs, said CGS-CIMB's Ms Lim. While Venture Corp performed in line with expectations, the house was excited over management's guidance of a stronger second half FY2020 supported by new product launches.

Among the telcos, Singtel disappointed on the back of lower roaming revenues and stiff market competition in Australia while StarHub's quarterly net profit nearly doubled on lower operating expenses and higher device sales.

As for the 2020 prospects, much will depend on the duration of the virus outbreak.

Credit Suisse head of Singapore equity research Gerald Wong expects earnings to contract this year as a result of Covid-19 compared to consensus expectation in December 2019 for 3.9 per cent growth, and current expectation of 2.9 per cent growth.

He said: "In our view, cut to consensus EPS (earnings per share) of 3.6 per cent year-to-date has incorporated impact of Covid-19 lasting about one quarter, while sustained weakness in tourism-related sectors and further Fed rate cuts could drive further earnings downside".

He added that the extent of the earnings cuts for 2020 will be smaller than the 13 per cent reduction over the Sars period in 2003, given Singapore's resilient residential property market, which should limit earnings downside risks for the developers and banks.