Slower profit growth ahead, warn analysts

Slower profit growth ahead, warn analysts


Volatile markets, higher raw material costs and possible US recession could hurt bottom lines


CORPORATE Singapore enjoyed a sparkling first quarter despite the threat of a worldwide economic slowdown, spiralling inflation and a global credit crunch.


And while analysts warn that the road ahead will get rougher, results from the three months ended March 31 should help bolster confidence.


By 7pm yesterday – the 45-day reporting deadline – 312 companies had reported results for the three months ended March 31.


Their combined net earnings were up 17 per cent to $7.91 billion compared to last year, but 41 firms were in the red.


Although the year-on-year numbers were impressive, analysts point to a sequential slowdown in earnings growth relative to the previous quarter. And these figures are tipped to dip even more in the coming quarters.


‘The outlook appears cautious in most companies. We will be lucky if we can see growth of just under 10 per cent. The results are likely to be neutral to slightly negative in the coming quarters,’ NRA Capital managing director Kevin Scully said.


Factors such as currency volatility, a rise in raw material costs and an expected recession in the United States may dampen the bottom lines of companies in Singapore.


The numbers themselves pointed to some standout performers, particularly palm oil firms Wilmar International and Golden Agri-Resources.


They were fifth and second, respectively, on the profit chart.


Higher commodity prices enabled Wilmar to post a 590 per cent jump in profit to US$343 million (S$473.8 million).


A Goldman Sachs report on the firm noted: ‘Overall, no major change to our earnings estimates, but we see upside risks to our forecasts on potentially higher processing margins.’


Golden Agri’s profit shot up 102 per cent to US$442.8 million. However, this included a US$307 million net gain in the fair value of the company’s biological assets.


The property sector had a mixed outing. Some companies experienced a contraction because of the absence of one-off gains, while others were hurt by weaker market sentiment.


But there was cheer for City Developments (CDL), with profits up 31 per cent to $164.97 million despite a quiet market.


A DBS Vickers report noted: ‘CDL will continue to recognise revenue from its sold-out property developments, while enjoying positive rental reversions on its investment portfolio.


‘It’ll be a prime beneficiary when market sentiment recovers.’


The three local banks emerged almost unscathed from the global credit turmoil, with none disappointing in earnings.


But an economic slowdown in Singapore is likely to dampen loans growth and could result in a higher risk of defaults.


Likewise, analysts warn of a bumpy ride ahead for companies in the transport and technology sectors.


For example, soaring crude oil prices could hurt margins in transport firms while a slowdown in the United States would dampen business for technology players.


Mr Scully said: ‘The technology sector looked weak. We’re seeing some squeeze on margins and will probably see more profit warnings down the road.’


Source: Straits Times

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