SINGAPORE - The slowing economy both here and overseas will have a major impact on earnings this year, said DBS Bank executive Janice Chua.
Ms Chua, the bank's head of Singapore equity research, has slashed her forecast of earnings per share growth for this year from 13.4 per cent to just 2.8 per cent.
Earnings downgrades could continue into next year, for which earnings per share growth of 7.7 per cent is forecast. "The third quarter has traditionally been volatile and this year is no exception," Ms Chua said.
"Asian equity markets reeled from a funds outflow triggered by a lethal combination of the regional slowdown, political uncertainties, weak corporate earnings, low oil and commodity prices and weakening regional currencies. China's surprise move to devalue the yuan also ignited a bear rampage."
Investors will likely watch for pointers across a range of sectors.
The provisions and non-performing loans recorded by the local banks will be telling, as will the impact of foreign-exchange fluctuations on plantations and real estate investment trusts (Reits).
Contract rescheduling or cancellations for rig builders could also indicate further downgrades next year.
One silver lining may be airlines and shipping, which could benefit from cheaper fuel.
Reits may offer a temporary shelter for investors seeking yields as the expected United States interest rate hike seems to be back on hold.
"Singapore Reits offer an average full-year 2016 yield of 7 per cent," DBS said. "While we expect operational headwinds and have cut back our growth assumptions, Reits are more resilient and offer better earnings growth at 6.2 per cent versus minus 2 per cent for Straits Times Index components this year.
"Retail Reits are likely to outperform, given strong foot traffic and sustained tenant sales. Hospitality Reits could face weakness in third-quarter results with rising competition."
Meanwhile, still-low oil prices could have a knock-on effect on shipyards and service providers.
New orders for Singapore rig builders are expected to fall from $9 billion a year to between $5 billion and $6 billion as demand for new-build drilling rigs wanes over the next one to two years, DBS said. "This will eventually translate into declining earnings. We cannot rule out the possibility that some uncompetitive players may go under in a prolonged low-oil-price environment."
That could fuel a wave of mergers and acquisitions (M&A) as major players shed non-core assets and smaller firms merge to survive.
Some potential takeover targets include Ezion Holdings, Dyna-Mac as well as Ezra Holdings firms such as Triyards Holdings and Emas Offshore. Firms with high cash hoards, such as Baker Technology and Tanjung Offshore, are possible privatisation candidates, said DBS.
The bank also sees M&A possibilities among Singapore shipyards to counter rising competition from China and South Korea.
The "survivability" of small- and mid-cap oil and gas firms has come under close scrutiny as fears of defaults and insolvencies mount.
"We stress-tested the balance sheets of key Singapore and Indonesia service providers. Ezra and Swiber have the highest near-term refinancing requirements (this year and next). Ezra has undergone a series of corporate actions, resolving its 2015 refinancing needs," DBS said.
"Both Ezion and Pacific Radiance have lower near-term refinancing risks. We believe Ezion's strong market positioning and demand for service rigs, and Pacific Radiance's management team and cost competitiveness, will allow them to better navigate the downturn."
