Half-year results reflect slowdown

Even as economic forecasts are cut, analysts note that healthcare still generating growth

Thus ended the season of poor earnings. As of Tuesday, the combined net profit of the 438 listed companies here that reported half-year results was $17.56 billion, down 3.6 per cent from a year ago.

No surprise there as Singapore's banks, the usual heavyweights, crimped under slower loan growth, while the oil and gas sector suffered from project deferrals and low oil prices. Property developers also missed expectations, as did Reits reliant on hotel revenue.

"This set of earnings has been disappointing," said DBS Group Research executive director Janice Chua.

As a result, her team of analysts has cut their earnings forecasts by as much as 7 per cent for the next two years - just as officials last week knocked down their full-year economic forecasts for 2016, from 1-3 per cent to 1-2 per cent, on fears that the Singapore economy may grow at its slowest pace since 2009.

Although most large-cap stocks have maintained their first-half dividend payouts, "there is a general trend of prudent management strategies to curb costs and manage expenses in a slowing environment", said OCBC Investment Research head Carmen Lee.

Keppel Corp, Sembcorp Marine, Sembcorp Industries, OUE and Roxy-Pacific are among those that cut dividends this round, while logistics firm CWT and Midas Holdings, which makes aluminium alloy products, opted not to make any payouts.

Analysts are pointing to healthcare as the only sector generating growth, while telcos and certain consumer staples have managed to keep profits steady.

Valuations have already captured this, noted Ms Lee, with healthcare stocks trading at prices above the market average.

Obstetrics and gynaecology clinic operator Singapore O&G, which made its Catalist debut last year, posted a 90.7 per cent jump in net profit for the six months ended June 30, on an 80.5 per cent hike in revenue, after consolidating its recently acquired dermatology business.

Specialist healthcare provider Singapore Medical Group engineered a turnaround in the first half as its healthcare and aesthetic surgery businesses grew. It plans to expand further into diagnostic imaging, after acquiring a radiology business last year.

RHB analyst Jarick Seet, who covers small and mid-cap stocks, said the growth in the healthcare sector looks sustainable: "A lot of it is driven by previous acquisitions, and this year is when the earnings are all starting to roll in."

Interest could also hot up if corporate healthcare solutions provider Fullerton Health goes through with its reported $300 million initial public offering later this year.

For now, analysts remain in the mood for bottom-up stock-picking, seeking out small or mid-cap stocks in niche growth areas.

"Growth is very company-specific," noted Mr Seet, with many firms in the same sector producing a mixed bag of results.

One example of a stock with a niche growth story is Acromec, a "rare" engineer in the healthcare space that listed on the Catalist board in April, he said.

Ms Chua named media firm mm2 Asia, exhibition company Cityneon and restaurant group Jumbo as growing businesses in the tough operating environment.

A version of this article appeared in the print edition of The Straits Times on August 20, 2016, with the headline 'Half-year results reflect slowdown'. Print Edition | Subscribe