WhyItMatters

Corporate earnings pick up

Companies listed on the Singapore Exchange are faring better. After two years of corporate earnings downgrades and disappointment, a nascent recovery is picking up steam as banks and semiconductor-linked manufacturers exceeded expectations in the second quarter.

In all, 149 Singapore-listed companies posted a combined $6.27 billion in second-quarter profits, up 18.5 per cent from a year earlier, according to a Business Times compilation of companies that had posted their results as of Tuesday.

Barring a global shock, robust non-oil domestic exports (Nodx) and a surprise upward revision in Singapore's second-quarter economic growth could keep the recovery in corporate earnings on track for the rest of the year, analysts say.

"Most of the bigger cap stocks have done well in the second quarter. Banks provided a lot of comfort in terms of asset quality and net interest margin expansion, while exporters like Venture Corp provided solid upside surprises. We may finally be seeing an end to the major earnings downgrades," said UOB Kay Hian head of research Andrew Chow.

Economic indicators such as Nodx and economic growth are supportive of the corporate earnings outlook. Singapore's second-quarter economic growth grew at a faster pace than expected, up 2.9 per cent year on year, as the manufacturing sector expanded at a robust rate, according to Ministry of Trade and Industry data released yesterday.

But analysts warned that the recovery is not broad-based as the oil and gas sector and retail services remain in the doldrums. NRA Capital head of research Liu Jinshu, citing Bloomberg data yesterday, noted that the number of profitable companies was unchanged for the quarter: "That shows conditions are still challenging except for some sectors. Financials, some real estate firms and IT helped offset the drag from oil and gas and industrials."

Nonetheless, barring unexpected shocks, there are signs that local corporate earnings have turned the corner and should deliver earnings growth, albeit from a low base.

Grace Leong

A version of this article appeared in the print edition of The Straits Times on August 12, 2017, with the headline 'Corporate earnings pick up'. Print Edition | Subscribe