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Earnings forecast grim in H1

By Wang Ying (China Daily)
Updated: 2009-07-16 11:53

Residential buildings under construction in Quanzhou, Fujian province. Of more than 800 listed companies that have announced their mid-year earnings figures, less than half said they would be profitable in the first six months. [CFP]

A total of 815 listed companies on the Shanghai and Shenzhen bourses have announced their mid-year earnings forecast, and less than half of them predicted they would be profitable in the first half of fiscal 2009.

But that has not dampened the spirit of investors who have trained their eyes on the bullish performance of the big-cap companies, especially those in the all-important real estate sector.

For example, China Merchants Property Development, one of the bigger real estate companies, has posted a 125-percent year-on-year increase in net profit, to an estimated 4.5 to 4.9 billion yuan for the first six months of 2009. In the first half of 2008, the property development company realized a total of 219 million yuan in profit.

Although Vanke, the barometer of China's property market, has not issued an earnings forecast, reports of the brisk sales of apartments it has developed have impressed investors.

According to a latest report on property sales, Vanke maintained the top slot in gross floor area sales, with Poly Real Estate Group and Hengda Real Estate following. The same report said the top 20 property developers sold a total of nearly 6 billion sq m gross floor area worth 6 billion yuan nationwide.

Stock analysts predicted real estate developers' earnings would grow even faster in the second half due to escalating property prices in the major cities, especially Beijing and Shanghai. The land price record was rewritten four times in less than two months, with a piece of land auctioned for 4.06 billion yuan in the capital, making it the most expensive property in the country.

Related readings:  Chinese listed companies net profit up 450% in Q1  Orient Securities posts $135m net profit in H1  Top 100 listed companies see profits down 12% in 2008  Changyu FY results buoy investors

In Shanghai, the number of residential sales and purchase agreements hit a 17-month high to reach 13,805 in June, a big rebound from the record low of 3,264 in November last year. The first half of 2009 saw a total of 51,913 residential sales transacted, still 20 percent below the level a year earlier in Shanghai, said leading property consultancy provider, Jones Lang LaSalle.

But the performance of enterprises in many other sectors in the first half has been clouded by the economic slowdown.

According to the rules of the China Securities Regulatory Commission (CSRC), the nation's securities regulator, yesterday was the final date for listed firms to issue half-year forecasts or revise previous ones.

Statistics from Wind Info, a leading financial data provider, showed that of the 806 listed companies who had registered their mid-year forecast with it, 312 forecast profit. Among them, 43 expected a turnaround, 238 forecast a profit and another 31 made a consecutive second-year profit after losses.

According to the figures, 166 companies would make a loss for the first time, 100 forecast a second consecutive year loss, and another 216 reported a loss forecast. Apart from them, 12 companies failed to issue their mid-year forecasts due to various reasons.

Tu Jun, an analyst with Shanghai Securities Institute, said the mid-year forecast was better than expected and would not deal a substantial blow to market sentiment.

"Our research shows that the net profit reported in the mid-year forecast will drop 12 percent year-on-year and the net profit of the second quarter will slide 11 percent year-on-year. But listed companies will see an increase of 18 percent in net profit quarter-on-quarter, meaning they have to alleviate the revenue plunge from the previous quarter," Tu Jun said.

An analysis of Wind Info's statistics shows that material, capital goods, technology hardware and equipment, durable consumer goods and clothing were the four largest sectors reporting mid-year forecasts, with 210, 139, 74 and 67 companies respectively. And their ratios of reporting profits were 28.1 percent, 46.8 percent, 37.8 percent, and 41.8 percent.

Zhang Fan, an analyst with Tebon Securities, told China Daily that he expected a rally in the property sector in the third quarter thanks largely to an acceleration of fixed assets investment in the field, which would also benefit related upstream and downstream industries.

"The realty market saw an increase in growth of 6-plus percent in May, and around 9 percent pickup in June, but this is still far away from the historic high of 33 percent," Zhang said.

Zhang believed the property market would continue to strengthen in the following months. "Home prices are rising so quickly, in conjunction with the limited investment in the real estate market since last year. That is leading to growing demand and lack of supply in the market now."

Tu Jun also suggested that the property, construction materials and finance sectors should receive more attention. "From the information we now have, the manufacturing industry needs more time to recover; more information technology companies have forecast losses. Cement and other construction materials makers also reported a profit, boosted by the 4-trillion-yuan stimulus package," he said.

He added that upstream industries like construction machinery, steel, and cement would benefit from the package, and even peripheral sectors such as logistics, glass, home appliance, and textiles would benefit.

Despite the rosy prospects for the steel sector, major domestic steelmakers, including Baosteel, Wuhan Iron and Steel, and Tangshan Iron & Steel, all expected a huge profit decrease in the first half. Among them, Tangshan Steel expected a net profit drop of 50 percent to 100 percent, while Handan Steel expected to see its first loss of 2.99 billion yuan.

Wang Jianhua, research director with mysteel.com, revealed that the actual demand for steel had increased in the first half.

The ongoing merger between China Eastern Airlines and Shanghai Airlines has raised market expectations about the new carrier's performance in the third quarter. But Wu Yunying, analyst with Changjiang Securities, said the new carrier still needed time to display integrated power.

After the merger, there would be three airline superpowers in Beijing, Shanghai and Guangzhou. The three carriers, China Eastern, Air China and China Southern, will hold 75 percent of total passenger flow. "The integration of the aviation industry would be intensified, and be good for competition against Western rivals," said Wu.

Zhang Qi, an analyst with Orient Securities, said domestic carriers' performance in the third quarter depends a lot on the recovery of the international aviation market. "The following months are the traditional high season for the carriers, but it is still uncertain if the carriers can raise their profitability considering the high fuel prices and shrinking demand," she said.

According to Zhang, falling international business has forced many carriers to relocate their capacity into the domestic market, exceeding current demand and eroding all players' profitability.