Singapore companies' Q1 profits disappoint, outlook dim: Analysts

Singapore-listed companies have turned in a largely disappointing set of first-quarter earnings so far with the oil and gas sector a particularly weak spot, and the outlook remains lacklustre, analysts said.

As at 5pm Friday, 277 Singapore-listed companies with December year-ends had reported their first-quarter results, according to data compiled by The Business Times. Profitable companies outnumbered lossmakers 198 to 79, or about five in the black for every two in the red.

There were 150 companies that posted poorer results, including 45 that fell into losses from year-ago profits. That outnumbered the 127 companies that had better bottomlines, including 21 that swung into profitability.

The median change in net profit was a one per cent decline.

"Broadly speaking not a good quarter," CIMB head of research Kenneth Ng said. "The number of disappointments outnumbered those that beat expectations more than two to one for those that come under our coverage."

Kum Soek Ching, head of South-east Asia Research for Credit Suisse Private Banking Asia-Pacific, said profit margins narrowed.

"Overall, there was a slight positive surprise in the revenue line but earnings were marginally below expectations," Ms Kum noted. "Other than financials and telecoms, all other sectors have so far underperformed against expectations."

The oil and gas, and offshore and marine sectors were consensus underperformers, even with expectations already tempered amid weak oil prices and project deferrals.

"In oil services, your Ezions, Pacific Radiance, even with low expectations, they've gone beyond that," UOB Kay Hian head of research Andrew Chow said. "We were going for losses, but the extent of losses were bigger than we thought."

Rigbuilder Keppel Corp, one of the biggest players in the space, notably caught the market by surprise with the magnitude of its profit decline, largely due to project deferrals. The group posted a 42 per cent drop in first-quarter earnings, to S$210.6 million.

"In oil and gas, our sense is it will get worse before it gets better," Mr Chow added. "There's still a lot of supply on the side."

Growth in the transportation sector came with some bumps. Mr Ng said his firm was disappointed with Singapore Airlines, which saw net profit grow 40 per cent in its fourth fiscal quarter to S$224.7 million, because lower fuel costs should have brought better benefits. SMRT Corp also missed targets despite a 28 per cent increase in fourth fiscal quarter net profit, to S$26.6 million.

"SIA and SMRT disappointed because of startup costs for SMRT, and for SIA it was lower passenger yields, so even though fuel costs came down they also had to bring fares down," Mr Ng explained.

Earnings were also soft in the consumer discretionary sector.

"Consumer discretionary also disappointed, as the hotel, media and retail sectors felt the pressure of a slowing Singapore economy," Ms Kum said.

On the bright side, however, DBS Group Holdings beat targets with a Q1 profit of S$1.2 billion, helped in part by a 15-year bancassurance deal with Manulife.

The outlook for earnings remains dim, all three analysts said.

"Consensus now expects 2016 earnings per share growth of -0.96 per cent from MSCI Singapore, a small downgrade from zero growth at the start of the year," Ms Kum pointed out. "In view of the weak macro backdrop and policy challenges, we expect corporate profitability to stay sub-par in the next 12 months, limiting the market upside. We thus see a range-bound market, with cheap valuations cushioning the downside."

In terms of prices, however, the diminished expectations could create some bargain opportunities.

"I can't see many bright spots," Mr Ng said. "The biggest bright spot for Singapore is valuations, because many sectors are at the cheaper range of trading history. There is some recovery in ASEAN, in Indonesia, so stocks exposed to that might do better."

Yields and unusually deep discounts held attraction for Ms Kum.

"We advocate looking out for 'reversion-to-mean' trading opportunities in the market," she added. "With Fed rate hike expectations being pushed out, yield stocks are also likely to continue to do well."

This article was first published on May 16, 2016.
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