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Wednesday 9 September 2009
Chinese firms post strong Q2 results
China’s mainland-listed companies look set to avoid an earnings decline this year after strong second-quarter results, spurring analysts to raise their forecasts to a flat performance from a 10 per cent drop.
(SHANGHAI) China’s mainland-listed companies look set to avoid an earnings decline this year after strong second-quarter results, spurring analysts to raise their forecasts to a flat performance from a 10 per cent drop.
While the brighter outlook has largely been factored into China’s stock prices, and valuations are still relatively high overall despite a month-long market slump, improved profits will offer investment opportunities in sectors with lower valuations.
Recommended sectors included banks, whose interest margins are expected to recover in the second half of this year; oil refiners, whose earnings have already jumped due to government fuel pricing reforms; and cars, which are a focus of official efforts to boost domestic consumption to support the economy.
‘The fact that shares still trade at an average forecast PE (price/earnings) ratio of about 25 times will limit the market’s upside despite improving earnings,’ said Zhang Qi, senior stock analyst at Haitong Securities in Shanghai. ‘However, more profitable opportunities have now emerged for sectors whose valuations are lower than the overall market.’
China’s benchmark Shanghai Composite Index has made a tentative stab at a rebound this week after diving 22 per cent in August, its second biggest monthly fall in 15 years, hit mainly by high valuations which went far ahead of the economic recovery, after a 90 per cent jump this year until early August.
China’s 1,600-plus firms listed on the Shanghai and Shenzhen stock exchanges, which ended the first-half results reporting season last week, posted a combined second-quarter net profit of 278 billion yuan (S$58.7 billion), up 36 per cent from 204 billion yuan in the first quarter, state newspapers calculated.
Second-quarter earnings were virtually unchanged from the same quarter last year, helping to narrow the year-on-year drop in first-half earnings to 15 per cent from 26 per cent in the first quarter, official media said.
‘In contrast with last year, the earnings trend this year is for improvement each quarter with China’s economic recovery progressing well,’ said Wu Haijun, Shanghai principal at Power Pacific Corp of Canada, a foreign investor in Chinese stocks. ‘But investors are now looking beyond to 2010 as this year’s quarterly earnings have already been factored into prices.’
Eight stock analysts, fund managers and economists surveyed by Reuters for this story forecast listed companies’ 2009 net profit would be steady with the 2008 figure around 820 billion yuan, with the potential to show a slight rise. They had expected a 10 per cent fall in two similar surveys in April and May.
Analysts now expect a sizeable rise in fourth-quarter profit this year to offset most of the first-half decline, especially given a very low earnings base in the fourth quarter of last year when many listed firms took large provisions and destocking was at its peak as the rapidly slowing economy dampened demand.
The forecast 2009 PE ratio for large-cap mainland shares, mainly financial, refinery and car stocks, is around 15, about the same as the Hong Kong market’s average and lagging the broader mainland market’s 25, suggesting potential for gains.
China’s 14 listed banks posted first-half earnings that either fell or rose only slightly, even though China’s total new bank lending surged to a record monthly average of 1.23 trillion yuan in the period, as their net interest margins hit multi-year lows due to five official interest rate cuts late last year.
Total new lending has since slowed to 356 billion yuan in July and 320 billion yuan in August, but analysts said that was still a healthy level and the slowdown would be offset by an expected recovery in net interest margins in the second half.
The largest banks, such as Industrial and Commercial Bank of China and Bank of China, should be particularly resilient to the loan slowdown, they added.
Sinopec Corp, the world’s No 2 oil refiner after Exxon Mobil, posted a record profit in the second quarter that far exceeded expectations.
That paves the way for a solid 2009 result after reforms to ensure earnings hold steady regardless of oil price volatility\. \-- Reuters
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Chinese firms post strong Q2 results
(SHANGHAI) China’s mainland-listed companies look set to avoid an earnings decline this year after strong second-quarter results, spurring analysts to raise their forecasts to a flat performance from a 10 per cent drop.
While the brighter outlook has largely been factored into China’s stock prices, and valuations are still relatively high overall despite a month-long market slump, improved profits will offer investment opportunities in sectors with lower valuations.
Recommended sectors included banks, whose interest margins are expected to recover in the second half of this year; oil refiners, whose earnings have already jumped due to government fuel pricing reforms; and cars, which are a focus of official efforts to boost domestic consumption to support the economy.
‘The fact that shares still trade at an average forecast PE (price/earnings) ratio of about 25 times will limit the market’s upside despite improving earnings,’ said Zhang Qi, senior stock analyst at Haitong Securities in Shanghai. ‘However, more profitable opportunities have now emerged for sectors whose valuations are lower than the overall market.’
China’s benchmark Shanghai Composite Index has made a tentative stab at a rebound this week after diving 22 per cent in August, its second biggest monthly fall in 15 years, hit mainly by high valuations which went far ahead of the economic recovery, after a 90 per cent jump this year until early August.
China’s 1,600-plus firms listed on the Shanghai and Shenzhen stock exchanges, which ended the first-half results reporting season last week, posted a combined second-quarter net profit of 278 billion yuan (S$58.7 billion), up 36 per cent from 204 billion yuan in the first quarter, state newspapers calculated.
Second-quarter earnings were virtually unchanged from the same quarter last year, helping to narrow the year-on-year drop in first-half earnings to 15 per cent from 26 per cent in the first quarter, official media said.
‘In contrast with last year, the earnings trend this year is for improvement each quarter with China’s economic recovery progressing well,’ said Wu Haijun, Shanghai principal at Power Pacific Corp of Canada, a foreign investor in Chinese stocks. ‘But investors are now looking beyond to 2010 as this year’s quarterly earnings have already been factored into prices.’
Eight stock analysts, fund managers and economists surveyed by Reuters for this story forecast listed companies’ 2009 net profit would be steady with the 2008 figure around 820 billion yuan, with the potential to show a slight rise. They had expected a 10 per cent fall in two similar surveys in April and May.
Analysts now expect a sizeable rise in fourth-quarter profit this year to offset most of the first-half decline, especially given a very low earnings base in the fourth quarter of last year when many listed firms took large provisions and destocking was at its peak as the rapidly slowing economy dampened demand.
The forecast 2009 PE ratio for large-cap mainland shares, mainly financial, refinery and car stocks, is around 15, about the same as the Hong Kong market’s average and lagging the broader mainland market’s 25, suggesting potential for gains.
China’s 14 listed banks posted first-half earnings that either fell or rose only slightly, even though China’s total new bank lending surged to a record monthly average of 1.23 trillion yuan in the period, as their net interest margins hit multi-year lows due to five official interest rate cuts late last year.
Total new lending has since slowed to 356 billion yuan in July and 320 billion yuan in August, but analysts said that was still a healthy level and the slowdown would be offset by an expected recovery in net interest margins in the second half.
The largest banks, such as Industrial and Commercial Bank of China and Bank of China, should be particularly resilient to the loan slowdown, they added.
Sinopec Corp, the world’s No 2 oil refiner after Exxon Mobil, posted a record profit in the second quarter that far exceeded expectations.
That paves the way for a solid 2009 result after reforms to ensure earnings hold steady regardless of oil price volatility\. \-- Reuters
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