You are here
Q4 corporate earnings mixed, but estimates are already at trough
SINGAPORE-LISTED companies turned in a mixed set of results for the final quarter of 2016, but two years of downward expectation revisions could be near an end, analysts said.
Of the 237 companies with December year-ends that had reported their fourth-quarter results as at 9pm on Friday, 172 posted profits compared to 65 that announced losses, or about eight in the black for every three in the red, according to data compiled by BT.
Companies that turned in better results for their fiscal fourth quarter outnumbered those that did worse 136 to 98, or about seven up for every five down. Three profitable companies did not have year-ago comparables.
A total of 442 companies reported full-year results for the 12 months ended December. The profitable-to-loss-making split was 304 to 138, or about 11 profitable companies for every five loss-makers. Companies with improved bottom lines nudged out those with worse ones 239 to 200, or about six with better results in 2016 for every five that fared worse.
Reality mostly matched, if not slightly outperformed, analysts' expectations. But coming after about two years of downward revisions to earnings estimates, simply meeting estimates was a source of relief.
Credit Suisse investment strate-gist Suresh Tantia, for whom fourth-quarter earnings were broadly in line with expectations, said: "Earnings downgrades have clearly moderated as post several years of disappointments, analyst estimates for 2017 earnings are grounded on realistic expectations.
"Post-Q4 2016 earnings season, 2017 earnings per share estimates have remained unchanged, indicating the worst is clearly behind us. We expect earnings in the banking sector to show signs of recovery in the second half, coupled with diminishing drag from offshore and marine sector, which should lead to the end of downward earnings revisions for the market."
Banks and telcos stood out among the disappointments in the fourth quarter.
"The telecom sector disappointed as rising competition is eroding the industry's profitability," Mr Tantia said. "Singapore banks also witnessed some pressures as asset quality issues in the oil and gas sector resurfaced."
CIMB head of research Lim Siew Khee, who said that beats to misses were on par for her firm, noted strong performances for companies exposed to improved consumer and business sentiment.
"Manufacturing and exporters and US-dollar plays were the ones that did well on higher volume and the stronger US dollar," she said. "Property developers beat expectations from the recognition of China's projects. Consumer names like Best World International and Thai Beverage Public Co also did better than expected on higher sales."
However, a let-up in estimate downgrades did not necessarily imply a significant improvement in outlook, the analysts cautioned.
"We continue to believe that after two years of earnings recession, Singapore's corporate earnings are likely to trough in the first half of 2017 as macro indicators have bottomed out with sharp rebound in the industrial activity and exports growth," Mr Tantia said. "Rising interest rates and higher commodity prices also provide a tailwind for future growth. However, we believe that investors are likely to see the full benefits of improving underlying profitability only in 2018, with 2017 earnings expected to remain flat year-on-year."
Mr Tantia recommended taking profit on the current bounce-up and waiting for a better entry level.
UOB Kay Hian head of research Andrew Chow said 32 per cent of results in his firm's coverage beat expectations in the fourth quarter, better than the 11 per cent rate a year earlier. However, his firm is now expecting market earnings per share to grow 5.6 per cent in 2017, compared to a 7.8 per cent growth forecast before the latest reporting season.
The market may have overshot valuations slightly, with the Straits Times Index up 8.4 per cent year-to-date to close at 3,122.34 on Friday, he said.
"My target is 3,050, so I think the market run-up is a little too aggressive," he said. "I must say I get a bit worried if people are too upbeat on certain things."
UOB Kay Hian favours "laggard solid stocks with visible earnings and reasonable yield".
CIMB's Ms Lim recommended taking profit off the banks, but favoured exporters, US-dollar plays and keeping an eye out for laggards.