Profits of Singapore-listed companies hit by fall in oil, property prices

Profits of Singapore-listed companies hit by fall in oil, property prices

Singapore - The fall in oil and property prices translated to weaker profits for several Singapore-listed companies that announced their full-year figures.

As at late-Monday, 433 listed companies had released their results for the full year ended December 2015, data from The Business Times showed. They recorded a combined S$25.2 billion in profits, down 22.7 per cent from the year-ago period.

Keppel Corporation's full-year net profit fell 19.1 per cent to S$1.52 billion, with its fourth-quarter results hit by a S$230 million provision for the default risks tied to a US$4.9 billion rig construction contract with the financially stricken Sete Brasil.

Sembcorp Marine's full-year net loss stood at S$290 million, reversing from a net profit of S$560 million a year ago. In the fourth quarter, the yard group made provisions of S$801 million on rig building contracts and share of losses in other associates and non-operating items.

If Sete files for bankruptcy protection, the Singapore rigbuilders are buffered by the 65 per cent collection of contract value on the rigs meant to be delivered to Sete, and were only marginally cash flow negative as at end-2015, DBS Group Research said in a February report.

"It might make sense for them to continue building the units which are already at advance stages and sell them in the market. But this would require an additional few hundred million dollars of working capital from each yard, and there is uncertainty regarding the timing and value of disposals."

The oil plunge has been felt on the broader market, with the equity markets strongly correlated with that of oil, currently. This also puts pressure on Singapore banks, which have had to dispel fears over a banking crisis, even as they detail the ways in which they are restructuring loans or making provisions for oil-and-gas firms.

Still, DBS, Singapore's most profitable blue-chip firm, posted a 10 per cent rise in net profit to S$4.45 billion, reflecting in part benefits from holding the largest deposit base here. With rates rising, the bank made more money off loans - as reflected in its net interest margin - by re-pricing loans faster than re-pricing deposits.

OCBC posted a smaller lift in net profit, with earnings up 1.6 per cent to S$3.9 billion. It felt the drag from its insurance unit Great Eastern, which had a 10.6 per cent fall in net profit to S$785 million. The unrealised mark-to-market losses from Great Eastern's bond investment portfolio weighed on results; these made up 16 per cent of OCBC's net profit for the year.

UOB - the smallest of the trio by profit - had a 1.2 per cent dip in net profit to S$3.21 billion. The prior year results included a higher write-back of tax provisions.

If low oil prices are prolonged, Fitch Rating expects the impact on banks' earnings from credit stress for Singapore banks to be manageable.

"Such exposure is moderate as a proportion of banks' overall portfolios, and is often secured with moderate loan-to-value ratios, which limit the loss even with falling collateral values," it said in a report on Tuesday.

Fitch expects the domestic property market to correct further as a large supply of new homes comes on to the market while the economic outlook sours. But mortgage asset quality should stay resilient in the absence of any significant increase in the unemployment rate, it said.

"Household balance sheets remain broadly healthy, and macro-prudential measures in recent years have focused on ensuring that households borrow within their means."

The property slump has hit developers, as seen with impairments on their properties. CapitaLand's 2015 net profit fell 8.2 per cent to S$1.07 billion, while that of City Developments was flat at S$773 million.

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This article was first published on March 2, 2016.
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