Little cheer, few surprises on S-chips’ earnings front
95 China-based firms’ combined net profits slump 52%; analysts wary of more weakness
By LYNETTE KHOO 22 May 2009
So, the analysts got it right this time, at least with the earnings of S-chips.
In line with projections of a double-digit slump, the combined net profits for 95 S-chips - China-based companies listed in Singapore - that reported their results for the first quarter ended March 31, 2009 tumbled 51.8 per cent from a year ago. Analysts are expecting further weakness in the seasonally slower second quarter.
The total net profit of these S-chips during the quarter was $436.72 million, more than half the level of $905.26 million in the same quarter last year.
It was a mixed bag of results as some went through a rough patch while for others, it was business as usual.
A quarter of these companies were in the red, of which 19 were in the black a year ago. About 42 companies posted lower profits. Still holding up are about 25 companies which reported higher earnings from a year ago, among the 69 S-chips that stayed in the black.
CIMB-GK analyst Ho Choon Seng noted that the fall in earnings ‘is not unexpected as most companies were hit by the same problems’.
Some chemical fibre companies and retail plays sang the same dreary tunes of dwindling sales and depressed selling prices.
Among them, China Sky Chemical Fibre Co swung to a net loss of $12.9 million from a net profit of $36.28 million and Sino Techfibre recorded a net loss of $8.06 million compared with a net profit of $26.77 million.
China Hongxing’s net profit for the first quarter slid 50.9 per cent to $12.44 million, thanks to lower sales and product discounts, while Pine Agritech swung into a net loss of $5.02 million from a net profit of $15.58 million a year ago.
Cosco Corp’s net profit plummeted 60.5 per cent year on year to $33.15 million dragged by lower charter rates for dry bulk shipping and the lower profit contributions from the ship-repair, shipbuilding and marine engineering business.
But defying industry trends, Yangzijiang turned in a 30 per cent rise in first-quarter net profit to 483.3 million yuan (S$103.2 million) on a 23 per cent rise in revenue to 2.09 billion yuan, and kept its gross profit margin above 20 per cent, taking a lift from the construction of larger vessels at the group’s new yard.
Bolstered by higher selling prices for its high-end projects, Yanlord Land Group’s net profit more than doubled to $24.27 million for the first quarter ended March 31, 2009 from $9.31 million for the previous corresponding quarter.
Also showing resilience was China Fishery, whose net profit put on 8.2 per cent to US$43.7 million on the back of higher sales. This triggered a ‘buy’ call from DMG & Partners Securities in anticipation of its long-term growth potential.
Alan Lok, director at Sabio Global, noted that S-chips come under two different tiers - those with exposure to overseas markets and those that rely on domestic consumption. Unfortunately, the profiles of the S-chips here mostly fall under the first group, with main export markets being the United States and Europe.
The second group of S-chips, however, has held up well but ‘the risk is we don’t know how long China’s consumer market can sustain this kind of results’, Mr. Lok said.
Henderson Global Investors fund manager Andrew Mattock noted that industrial activity in China has picked up and this could benefit mid-caps with domestic exposure.
There are also tentative signs that the Chinese residential property market may be bottoming out, as transaction volumes in major cities continue to increase. But he is wary of some export-driven industries, which are dependent on a pick-up in global demand.
Given the shortage of bright spots on the earnings front, there hasn’t been a major re-rating of S-chips. And where earnings are looking up, analysts are assessing the governance aspect of these companies.
CIMB-GK research head Kenneth Ng has, for instance, noted that China Sky could return to marginal profitability in the second quarter.
But ‘the weak environment, the cash burn and a share overhang from the revelation that CEO Huang Zhong Xuan has pledged his 19 per cent stake in the company are reasons for a negative position on the stock’, he said, cutting his rating from ‘neutral’ to ‘underperform’.
Kim Eng analyst James Koh said he expects earnings per share of S-chips to be flat, compared with last year.
While some economic indicators in China seem to suggest that things are picking up, fundamental positive developments ‘should likely still be industry and company specific rather than broad-based’, he added.
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Little cheer, few surprises on S-chips’ earnings front
95 China-based firms’ combined net profits slump 52%; analysts wary of more weakness
By LYNETTE KHOO
22 May 2009
So, the analysts got it right this time, at least with the earnings of S-chips.
In line with projections of a double-digit slump, the combined net profits for 95 S-chips - China-based companies listed in Singapore - that reported their results for the first quarter ended March 31, 2009 tumbled 51.8 per cent from a year ago. Analysts are expecting further weakness in the seasonally slower second quarter.
The total net profit of these S-chips during the quarter was $436.72 million, more than half the level of $905.26 million in the same quarter last year.
It was a mixed bag of results as some went through a rough patch while for others, it was business as usual.
A quarter of these companies were in the red, of which 19 were in the black a year ago. About 42 companies posted lower profits. Still holding up are about 25 companies which reported higher earnings from a year ago, among the 69 S-chips that stayed in the black.
CIMB-GK analyst Ho Choon Seng noted that the fall in earnings ‘is not unexpected as most companies were hit by the same problems’.
Some chemical fibre companies and retail plays sang the same dreary tunes of dwindling sales and depressed selling prices.
Among them, China Sky Chemical Fibre Co swung to a net loss of $12.9 million from a net profit of $36.28 million and Sino Techfibre recorded a net loss of $8.06 million compared with a net profit of $26.77 million.
China Hongxing’s net profit for the first quarter slid 50.9 per cent to $12.44 million, thanks to lower sales and product discounts, while Pine Agritech swung into a net loss of $5.02 million from a net profit of $15.58 million a year ago.
Cosco Corp’s net profit plummeted 60.5 per cent year on year to $33.15 million dragged by lower charter rates for dry bulk shipping and the lower profit contributions from the ship-repair, shipbuilding and marine engineering business.
But defying industry trends, Yangzijiang turned in a 30 per cent rise in first-quarter net profit to 483.3 million yuan (S$103.2 million) on a 23 per cent rise in revenue to 2.09 billion yuan, and kept its gross profit margin above 20 per cent, taking a lift from the construction of larger vessels at the group’s new yard.
Bolstered by higher selling prices for its high-end projects, Yanlord Land Group’s net profit more than doubled to $24.27 million for the first quarter ended March 31, 2009 from $9.31 million for the previous corresponding quarter.
Also showing resilience was China Fishery, whose net profit put on 8.2 per cent to US$43.7 million on the back of higher sales. This triggered a ‘buy’ call from DMG & Partners Securities in anticipation of its long-term growth potential.
Alan Lok, director at Sabio Global, noted that S-chips come under two different tiers - those with exposure to overseas markets and those that rely on domestic consumption. Unfortunately, the profiles of the S-chips here mostly fall under the first group, with main export markets being the United States and Europe.
The second group of S-chips, however, has held up well but ‘the risk is we don’t know how long China’s consumer market can sustain this kind of results’, Mr. Lok said.
Henderson Global Investors fund manager Andrew Mattock noted that industrial activity in China has picked up and this could benefit mid-caps with domestic exposure.
There are also tentative signs that the Chinese residential property market may be bottoming out, as transaction volumes in major cities continue to increase. But he is wary of some export-driven industries, which are dependent on a pick-up in global demand.
Given the shortage of bright spots on the earnings front, there hasn’t been a major re-rating of S-chips. And where earnings are looking up, analysts are assessing the governance aspect of these companies.
CIMB-GK research head Kenneth Ng has, for instance, noted that China Sky could return to marginal profitability in the second quarter.
But ‘the weak environment, the cash burn and a share overhang from the revelation that CEO Huang Zhong Xuan has pledged his 19 per cent stake in the company are reasons for a negative position on the stock’, he said, cutting his rating from ‘neutral’ to ‘underperform’.
Kim Eng analyst James Koh said he expects earnings per share of S-chips to be flat, compared with last year.
While some economic indicators in China seem to suggest that things are picking up, fundamental positive developments ‘should likely still be industry and company specific rather than broad-based’, he added.
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