Thursday 30 October 2008
A-share earnings growth forecast to average 25pc on economic advance
Earnings of A-share companies are expected to grow at a compound annual rate of about 25 per cent over the next 10 years, thanks to the mainland’s sustained economic growth and strong performance by individual companies, an economist with Citic Ka Wah Bank said.
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A-share earnings growth forecast to average 25pc on economic advance
Jonathan Yang
30 October 2008
Earnings of A-share companies are expected to grow at a compound annual rate of about 25 per cent over the next 10 years, thanks to the mainland’s sustained economic growth and strong performance by individual companies, an economist with Citic Ka Wah Bank said.
“The current price-earnings ratio of about 14 times for the A-share market is undervalued,” said Liao Qun, the chief economist at Citic Ka Wah.
“We believe that a reasonable level would be about 25 times or slightly higher with a medium to long-term perspective.”
Mr Liao said he expected the mainland economy to grow at least 8 per cent next year and sustain such growth for the next 10 years.
He cited several factors that would drive moderate growth, including infrastructure improvement, stronger domestic consumption, increasing integration into the global economy, faster rural development, urbanisation, industrial transformation, technological improvements and continued market reforms.
He also said industrial and financial enterprises, which dominated the mainland’s A-share market, would maintain growth of more than 13 per cent.
Mr Liao argued that a drop in the growth of A-share company earnings from 49.4 per cent last year to 19 per cent in the first half of this year mainly stemmed from a substantial profit fall in the energy and utilities sectors. These sectors account for 30 per cent of total A-share market capitalisation.
“If the two are excluded, the earnings growth would have been about 43 per cent and the gap from last year would have been reduced significantly,” Mr Liao said.
Earnings in the mainland energy and utilities sectors slid 27 per cent and 85 per cent respectively in the first half because of the central government’s cap on refined oil prices and electricity tariffs - and a surge in crude oil and coal prices. .
Separately, BNP Paribas yesterday upgraded its rating on the Hong Kong-listed shares of mainland companies, known as H shares, to “overweight” from “underweight”.
BNP said in a report that the shares were cheap after a year-long drop and that China remained financially stronger than other nations.
The report said the H-share index had slumped 71.63 per cent from its peak in October last year.
The dividend yield for the benchmark’s shares now stands at 5.7 per cent, while stocks trade at 6.3 times earnings, near their historical low of 6.2 times reached in 2001.
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