Most firms in the black, but it's paler now

August 15, 2008
Most firms in the black, but it's paler now
Many saw profits dip in H1; outlook not bright
By EMILYN YAP

(SINGAPORE) Singapore-listed companies had mixed financial fortunes
in the first half of the year, and market watchers warn of tougher
economic conditions ahead which could shave earnings for some
sectors.

Of the 441 listed firms which had reported their results as of
yesterday evening, 376, or 85 per cent, raked in profits for 1H08.
Within this majority however, 159, or 42 per cent, earned less
compared with a year ago.

'So far, 1H08 results have been largely mixed,' said Christopher
Wong, investment manager at Aberdeen Asset Management Asia.

Some sectors have taken a bigger hit from the recent economic
downturn. For most property firms, sterling results from last year's
booming real estate market were hard to beat. CapitaLand, for
instance, saw net profit drop 49.8 per cent to $762.7 million in the
first half of the year.

Results diverged when it came to the banking sector. UOB and DBS
withstood financial market headwinds and beat expectations to achieve
higher net earnings in the first half.

OCBC Bank, however, surprised the market with an 11.2 per cent fall
in net profit to $1.05 billion. Volatile markets lowered trading
income and reduced contributions from insurance subsidiary Great
Eastern Holdings. The bank also set aside more allowances for its
collateralised debt obligations portfolio in the second quarter.

There were sectors which scored better in the first half of the year.
Earnings for offshore and marine firms 'met our expectations', said
Kim Eng's senior analyst Rohan Suppiah. The sector held up relatively
well against rising costs and order books remain strong, analysts
told BT.

Many real estate investment trusts (Reits) also reported higher
distributable income and strong distribution yields in the first half.

The commodity sector put up a particularly strong showing. Boosted by
higher crude palm oil prices, increased sales volume and improved
margins, Wilmar International yesterday reported a 346 per cent leap
in first-half net earnings to US$674.8 million. Profits for Noble
Group also more than doubled to US$289.6 million in the same period.

As dark clouds gather over the global economy, market observers
believe that companies will need to buckle up for a rougher ride
ahead. 'Previous bear markets of this depth and duration ... are
followed by recessions or economic downturns. Economic data will
likely get worse before it gets better,' predicted Citi researchers
Chua Hak Bin and Tan Chun Keong in a report on Wednesday.

The government recently trimmed growth forecast for the full year
from 4-6 per cent to 4-5 per cent as the weakening US economy dampens
growth in Asia and Singapore.

Reflecting sentiments, DBS Vickers' research head Janice Chua
said: 'We've cut our earnings growth (estimates) for this year
already.'

Of course, some sectors could turn out to be more resilient. 'We
recommend ... high dividend yield plays, particularly Reits and
telcos,' said Citi's report.

Analysts also found the offshore and marine sector a relatively safe
bet. While concerns over rising steel costs and possible order
slowdowns remain, large firms such as Keppel Corporation should be
able to withstand these pressures, they said.

According to market consensus, the property and banking sectors are
likely to remain vulnerable in the second half. 'All banks guided
that loan growth would taper down in 2H08 to low double digits,' said
a DBS Vickers report on Monday.

And, as UOB's deputy chairman and CEO Wee Ee Cheong said: 'The past
six months have been challenging, and it's not going to be any easier
as global institutions seek ways to rebuild their balance sheet and
economies cope with slowdown and inflation.'

Those fishing for good investments in today's market will have to
start doing some good old-fashioned groundwork. 'It comes back to ...
looking at the balance sheets of companies and their ability to
generate cash flows,' said Aberdeen's Mr Wong.