Emerging sectors set to outperform old economy

Companies listed on the Shanghai and Shenzhen bourses are forecast to announce divergent financial results for the first quarter (January-March) of this year and the entire last year.

Emerging sectors like consumer services, entertainment, non-banking financial services, and food and beverage are expected to post the highest rise in net profit on the back of soaring demand, analysts said.

But, steel and cement companies' profit growth rate is seen falling due to overcapacity, shrinking demand and decline in prices. Some of these companies may even incur big losses.

More than 60 percent, or 1,280 firms, of the 2,068 companies that released forecasts for 2015 annual results, said they anticipate more than 50 percent rise in their net profit.

Some 775 companies, however, forecast decline in net profit or losses due to shrinking demand and fall in prices amid slowing economic growth.

Dai Kang, analyst with Guotai Junan Securities Co Ltd, said in a note emerging sectors will likely see more than 50 percent growth in net profit on average.

Steelmakers, miners and trading firms, however, may see their net profit growth shrinking by some 70 percent on average.

The wide divide between the emerging and manufacturing sectors will underscore the need for supply-side reforms amid slowing economic growth, according to the note.

Thirteen of the 21 companies that released first-quarter forecasts on Feb 12 said they expect net profit to grow as market demand is picking up, according to data of Shanghai-based WIND Information Technology Co Ltd.

Analysts said the forecasts show companies engaged in high-tech ventures, and food and beverage, transportation, pharmaceuticals and bio-technology sectors will likely benefit from trading up by consumers.

A report from Beijing Gao Hua Securities Co Ltd by economist Song Yu said multi-media entertainment, biochemicals, pharmaceuticals, high-end consumer products and high-tech domestic appliances are among the sectors that will show fastest growth in profits.

They also have the greatest potential for long-term prosperity because China's economic growth will be driven by innovation, which, in turn, will encourage consumers to trade up.

A report from Gosun Securities said companies engaged in steel, coal, and lower-end consumer products are experiencing great pressure due to loss of synergy.

The report said overcapacity, shrinking demand and declining prices are the major reasons for the expected losses at companies in these sectors.

Companies that do not adjust to changing spending priorities of consumers, may see further losses in the next few quarters, while innovation-driven firms may be able to buck pressures related to economic growth slowdown, the report said.

In terms of specific companies, Shenzhen-listed, Xi'an-based BODE Energy Equipment Co Ltd, an equipment supplier to petroleum enterprises, forecast its first-quarter net profit will reach up to 10.5 million yuan ($1.54 million), up almost 900 percent year-on-year.

It said its core business, including research and development, and integration of petroleum industrial machines, is coasting on surge in demand.

Rapoo Technology Co Ltd, a supplier of computer devices based and listed in Shenzhen, forecast it will transition from red to black in the first quarter with a net profit of up to 12 million yuan. By enlisting new clients, the company has increased its income.

wuyiyao@chinadaily.com.cn