Tuesday, July 13, 2010

Analysts upbeat about Q2 results

Better-than-expected Q1 numbers and strong economic figures fuel optimism

EXPECTATIONS are high for the upcoming reporting season, thanks to upbeat first-quarter results and strong economic figures.

The numbers will start rolling in on Thursday - telco M1 is first up - and year-on-year growth is a given, say analysts, considering the dire state of the economy 12 months ago.

OCBC Investment Research analyst Carey Wong said: 'Results on the year will surely be up. Last year's March was pretty bad, and the recovery came only after last June.'

He added that second-quarter earnings should either be flat when compared with the first or show a slight growth.

The 350 firms that posted first-quarter results recorded total net profit of $6.84 billion, 34 per cent up over that of the previous year. Of these, 295 were profitable and 55 in the red.

Mr Wong said: 'The first-quarter numbers were a bit better than expected, and many analysts have raised their earnings estimates.

'A lot of the expectations have been priced in (into shares), but this raises a danger on the other side. We may have some disappointments if the numbers don't meet the new expectations.'

Much of the analysts' optimism rests on the figures pointing to Singapore's economic health. Data late last month showed that factory output grew by 58.6 per cent in May over a year ago - the highest-ever monthly increase.

Economists are also upbeat about advance second-quarter gross domestic product estimates, due tomorrow. A Bloomberg report last week suggested that Singapore may surpass China to become Asia's fastest-growing economy this year.

Sias Research vice-president Roger Tan said: 'Economic numbers have been encouraging and we expect many firms to benefit from Singapore's continued economic momentum.'

But for all the optimism in the air, analysts are split on real estate investment trusts (Reits), normally among the first to report results.

'We expect patchy distribution-per-unit growth - both quarter-on-quarter and year-on-year,' noted Daiwa Capital Markets. 'The only exception would be the Singapore hospitality sector, which is being fuelled by a rapid recovery in visitor arrivals.'

OCBC Investment Research said Singapore's strong numbers are being achieved against a backdrop of moderating global growth.

That suggests that Reits with investments in other countries will be a bit more cautious on the outlook for the rest of the year than industrial or retail trusts that are Singapore-focused. These may expect better results and have more aggressive growth plans.

Many eyes will be focused on the property sector. Recent official estimates show private home prices rose a higher-than-expected 5.2 per cent in the second quarter, sending prices to above 1996 peaks.

But developers saw a sharp drop in home sales in May, raising concerns that a period of slower sales was on the cards.

Amid these conflicting signals, Kim Eng analyst Wilson Liew expects property firms to do well.

'Earnings in the sector will be strong, underpinned by the strong sales that developers have achieved over the last year or so,' he said. 'The largest contributions to earnings will still be residential sales.'

Banks are also tipped to put in a good showing.

OCBC's Mr Wong said the lenders should do well as they are considered barometers of the wider economy.

Sias Research's Mr Tan said banks should continue to thrive, thanks to higher interest income and lower provisions for non-performing loans.

The strong economic numbers point to a myriad of other sectors that are expected to impress.

'We should see technology counters beat many expectations this quarter as demand for electronic products continues to stay strong,' noted Mr Tan.

'Some consumer discretionary and lifestyle product segments may also do well - especially those which have focused their strategy on markets in Asia.'

BH Global Marine will present results on Friday, with Keppel Corp, Keppel Land, Osim, Qian Hu and K-Reit Asia lined up for next week.

Source: Straits Times, 13 Jul 2010

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