Hundreds more Chinese companies just warned on profits

File photo showing the skyline of China's capital city Beijing, on Dec 31, 2018.
File photo showing the skyline of China's capital city Beijing, on Dec 31, 2018.PHOTO: REUTERS

BEIJING (BLOOMBERG) - The number of Chinese companies warning on earnings is turning into a flood as a deadline looms on Thursday (Jan 31), with no industry spared from worsening demand.

Some 440 firms said Wednesday that their 2018 financial results deteriorated. In total about 373 have said they'll post a loss out of the more than 2,400 mainland-listed firms that have announced preliminary numbers or issued guidance this season, data compiled by Bloomberg show. About 86 per cent of those incurring losses were profitable in 2017.

Damage has been widespread: airlines faced soaring fuel costs and a weak yuan, the equity-market slump hurt brokerages, while China's economic slowdown and surge in impairment costs slashed earnings for a bus manufacturer, a maker of refrigerators and an ID-card supplier. Another glut of forecast cuts is likely before the end of the day, as many firms opt to take a hit from more stringent accounting rules rather than report years of losses.

"We're only just seeing the beginning of deterioration in corporate earnings as the economy slows further," said Yu Dingheng, a fund manager at Shenzhen Flying Tiger Investment & Management Ltd. "Things will continue to go downhill for firms seeing business slowing and even as the macro-economy recovers, these individual firms will never be what they were."

Joining the growing list of firms projecting a worse 2018 on Wednesday were Lens Technology Co, developer Oceanwide Holdings Co, chemical producer CEFC Anhui International Holding Co and China Southern Airlines Co. Shares of all four companies fell onshore on Thursday.

To be sure, some Chinese firms actually said last year's results will be far better than expected: take Jiangxi Copper Co, WuXi AppTec Co or Guangzhou Baiyunshan Pharmaceutical Holdings Co. Only miner Jiangxi Copper rose ON Thursday.

China's equity traders fled stocks in Shenzhen again on Thursday, sending the city's benchmark down a fifth day. They've sought refuge in shares of state-controlled giants instead, betting that they're better placed to benefit from the government's efforts to support the economy. Shenzhen's stock exchange is home to most of China's start-ups and private companies.

 

For those looking for shelter from the flurry of profit cuts, analysts at Citigroup recommend a handful of Chinese property stocks. Even if the country's economy strengthens, the outlook for some of the companies who have flagged a slump in earnings is unlikely to improve, according to Flying Tiger's Yu.