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Most earnings meet forecasts, but ratio for those off-mark worsens

Citi Research shows 2-1 tally for earnings misses to beats for March quarter; main drag includes commodities/consumer firms and S-Reits

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Core profit appears to be growing at a steady clip in corporate Singapore - with most companies meeting expecations, but the latest March quarter results also show more earnings misses than earnings beats.


CORE profit appears to be growing at a steady clip in corporate Singapore - with most companies meeting expecations, but the latest March quarter results also show more earnings misses than earnings beats.

A Citi Research tally of stocks it covers showed misses outnumbered beats two to one in the March-quarter; a deterioration from the December quarter's three to two ratio.

The commodities/consumer sector was a standout disappointment, owing to Wilmar, Olam, Golden Agri-Resources and Indofood Agri Resources. A handful of Reits also missed forecasts.

And so it was that consensus earnings revisions fell 2 per cent as analysts tweaked their outlook to accommodate the latest results, Citi said. This is a reversal from the December-quarter, when the earnings revisions count rose 5 per cent.

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On the whole however, this earnings derby swept through without making too large a dent in the earnings-upgrade cycle that kicked off late last year.

Citi still reckons that earnings for the stocks it covers will grow by 9 per cent this year, unchanged from the view it took earlier this year during its last results wrap.

The beat goes on as the synchronised global recovery carries deeper into its second year. Mid- to late-cycle economic recovery picks Genting Singapore and Singapore Airlines even threw in some nice surprises.

The casino operator reported a higher-than-expected first-quarter profit, boosted by stronger VIP gambling volume and good luck in the form of a higher-than-usual house-win rate. A seasonal boost from the Chinese New Year period and the return of high rollers from China helped defy earlier concerns over growing margin pressure.

Genting shares have climbed 12.9 per cent since May 10, and closed at S$1.31 on Tuesday.

Singapore Airlines also flew above estimates on good progress from the first year of its three-year transformation plan. Passenger yield recovery from its flagship carrier and budget carrier Scoot helped reverse a net loss in the fourth quarter of last year. A final dividend of S$0.30 was thrown in, up from S$0.11 per share the year before, taking SIA's full year payout to S$0.40 a share. SIA shares closed at S$11.65 on Tuesday, up 4.6 per cent since May 17.

Looking at earnings momentum on a sector-by-sector basis, tech manufacturing services stocks ceded the leadership position that they had held since last year.

CGS-CIMB Singapore Research head Lim Siew Khee told The Business Times: "The tech sector is now heading into slower earnings growth and may derate. In addition, trade-war uncertainty and single customer risk may be blown up to cloud share price performance."

Banks, on the other hand, were more resilient, and continued to drive upward earnings revisions in the benchmark Straits Times Index.

Good results from DBS and UOB affirmed that the case for improving net interest margins remains strong, even as OCBC Bank reported a flat net interest margin from the December-quarter.

Healthy loan growth and a double-digit rise in wealth management fees all round helped some analysts stay bullish. Others, however, wondered whether banks' earnings momentum may be maturing.

Elsewhere, property developers - also early-cycle winners - gave a muted performance, though this did not upset projections of an earnings pick-up in the coming quarters.

Ms Lim said: "Generally, the developers' results were below expectations, but this is more so due to timing of project recognition that dragged down residential margins for City Developments, and higher amortisation and depreciation from the consolidation of UIC for UOL Group."

CityDev and UOL remain the market's top picks, with analysts closely eyeing the sell-through rates of their upcoming project launches.

Last weekend, 21 units of CityDev's 60-unit New Futura North Tower on Leonie Hill Road fetched an average selling price of over S$3,500 per square foot (psf). South Beach Residences is expected to be launched in the third quarter, followed by the West Coast Vale project in the fourth.

Also last weekend, UOL sold 80 units of its 139-unit Amber45 on Amber Road for an average price of S$2,200 psf. It plans to launch The Tre Ver condo in Potong Pasir in July.

But those hoping for the property upswing to broaden into the construction sector were disappointed.

Ms Lim said: "Contract wins are still slow amid stiff competition. A turnaround may come only in the second half of the year. Also, the new Malaysian government has signalled its intention to review the High Speed Rail project, which is one of the key projects in which Singapore players are contending."

Meanwhile, the oil and gas sector is struggling the most to live up to expectations.

DBS Singapore equities research head Janice Chua said: "While oil prices have been trending up, the stocks represented on the Singapore Exchange are mainly oil and gas equipment manufacturers or owners of vessels, supporting the oil exploration industry.

"These are late-cycle beneficiaries within the oil and gas value chain. Order wins could pick up, but these projects have a long lead time and may take two to three years to complete. Results may thus remain uninspiring for the rest of the year."

Sembcorp Marine's net profit plunged in the first quarter, falling short of street estimates. For the first time, the rig builder even guided for more quarters of operating losses, given that order flow remains poor, and that it is working through 2016-17 orders that were secured at skinnier-than-average margins.

Nevertheless, some punters are choosing to buy into a sustained oil price recovery ahead of the turn, and it was ultimately the Reits sector that joined the telcos at the bottom of investors' post-results season shopping lists.

Carmen Lee, head of OCBC Investment Research, said: "Out of the 23 Reits we cover, 19 met expectations, while four missed.

"Overall DPU (distribution per unit) growth for our coverage universe fell 2.6 per cent from the same period a year earlier."

READ MORE: At a glance: Q1 ended March 2018

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