Q3 profits seen having muted market impact

Business Times: Mon, Oct 10

(SINGAPORE) In just three days, CapitaCommercial Trust (CCT) will be among the first of over 300 companies to kick off this year’s reporting season for third-quarter earnings ended Sept 30.

But while analysts reckon that results would, by and large, meet lowered market expectations, they stressed that these are likely to have precious little impact on the direction of stock prices.

This is simply because more macro-economic and global concerns – such as the crises in the US and Europe – would overshadow the outcome of corporate profits, and hence carry far more influence over market movements.

It is worth noting, however, that this prognosis takes into account downward revisions of research forecasts – and more than once at that. Expectations have therefore been lowered from projections made earlier this year.

Said Carmen Lee, head of OCBC Investment Research: ‘A lot of adjustments have recently been made to previous earnings forecasts, and everything that has been happening in the last four months has been factored into this. Next to these revised figures, earnings are not going to come in disappointing.’

Moreover, analysts were unanimous in pointing out that historic earnings would, at the end of the day, hold scarcely any sway over the market.

Instead, all eyes will be fixed on how companies perform in the coming quarters, since earnings in Q4 FY2011, and even Q1 and Q2 FY2012, will be better indicators of any lag impact from the West’s economic woes – especially when there still seems to be no resolution in sight.

Said Kenneth Ng, CIMB’s research head: ‘Markets are not falling on concerns about earnings, but on the fear of a contagion (from troubles in the West), or a banking crisis. Concerns are over how this will have an impact on earnings a few quarters down the road.

‘That is why markets are falling the way they are. In fact, the impact on earnings will not come through as yet – it is still early days.’

Still, analysts acknowledged that Q3 earnings would be useful insofar as a guide to results further down the road.

‘After Q3 results are released, we expect to see a further downward revision of earnings, especially for the first half of next year. The key question is, by how much?’ Ms Lee said.

While growth is to be expected in Q3, analysts say that this would come at a slower rate. Still, corporate profits in the telecommunications, property, and offshore sectors are projected to come in as projected.

Companies in the property and offshore industries are unlikely to reflect near-term market headwinds in their Q3 earnings, since they work off an order book and will be recognising profits from sales and earlier contracts.

As for telcos such as M1 and StarHub, OCBC Research’s Carey Wong said: ‘It is pretty much business as usual, because there hasn’t been any big event – no new iPhone launches, no World Cup soccer matches – but people are going to want to see if telcos are able to sustain their margins.’

However, Mr Ng and Andrew Chow, head of research at UOB Kay Hian, agreed that the banking sector would be the most closely watched due to revenue challenges.

Said Mr Ng: ‘Greater challenges on the revenue side are likely to show up. Margins are likely to take another leg down because of falling swap offer rates and divestments of investment securities.’

Meanwhile, on the fee income side, he added, capital market fees would fall significantly while trading income, given volatile conditions, could ‘spring a negative surprise’.

In keeping with past years, the first group to announce Q3 earnings are the real estate investment trusts (Reits), followed by property developers Keppel Land and CapitaLand, and offshore players Keppel Corporation and Sembcorp Marine.

Source: Business Times © Singapore Press Holdings Ltd.


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