Published November 10, 2008

Q3 earnings down 15.7% at $4.13b

Banks in spotlight as they make higher provisions for bad loans, investments

By JAMIE LEE

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BANKS dragged down earnings this season, as total third-quarter net profit dropped 15.7 per cent year-on-year to $4.13 billion from the 132 listed firms that have reported results thus far.

Mr Stanley: Calls the current situation the worst financial crisis that he had ever seen

Local lenders took centre stage amid higher provisions for soured loans and investments, while worries over Las Vegas Sands's (LVS) financing problems raised concerns over the local lenders' exposure to the upcoming casino project.

Last week ended on a sombre note after DBS posted Q3 results on Friday that slumped below analysts' expectations and said that 900 staff would be fired by the end of this month.

The bank reported a 38 per cent fall in quarterly net profit to $379 million - nearly $100 million below the average net profit estimate from analysts polled by Reuters - as allowances for bad loans and investments jumped sharply.

UOB's net profit was crimped by 5.1 per cent to $475 million, while OCBC's Q3 earnings fell 13.2 per cent to $402 million.

The banks were also dogged by questions over loans to Las Vegas Sands, which is seeking a capital raising programme. The total loan exposure of three banks here is said to be about $2.2b but DBS assured on Friday there has been no default.

The worst is yet to come, cautioned leaders of the three banks, with DBS chief executive Richard Stanley calling it the worst financial crisis that he had ever seen.

The banks were also dogged by questions over loans to LVS, which is now seeking a capital raising programme.

The total loan exposure of the three banks here is said to be about $2.2 billion but DBS assured on Friday that there has been no default.

Analysts also anticipate that the government would step in to ensure that the project would be completed. This could include asking a government-linked company to step in.

'With the availability of the Singapore government and related GLCs to take over, banks are unlikely to be squeezed at this stage,' says CIMB-GK analyst Kenneth Ng in a note last Friday, who rates the banks as 'underweight'.

Speculation has centred on CapitaLand, which earlier bid for the casino project. The property giant - 40 per cent owned by Temasek Holdings - had said in its third-quarter results that it was 'strategically watching the distressed markets, very carefully seeking out opportunities to make the right acquisitions at the right price'.

Hit by lower sales, CapitaLand posted a Q3 net profit of $419 million, down 25.6 per cent from a year ago. Citi analyst Wendy Koh maintained her 'sell' call on the stock in a Nov 2 report, as she warned of slower-than-expected construction progress and expected launch delays.

But many Reits stuck to their resilient story and assured on debt positions.

CapitaRetail China Trust posted a 52.6 per cent jump in its Q3 distributable income to $12.4 million, thanks to strong revenue growth from Beijing's Xizhimen mall, and said that it has secured refinancing for a US$105 million loan facility that is maturing soon.

Macquarie Prime Reit - which sold off a controlling stake to Malaysian conglomerate YTL Corp for $285 million - posted 17.6 per cent higher distributable income at $17.2 million, thanks to stronger revenue. It added that it had refinanced $220 million through a club deal with three foreign banks in August this year.

YTL's purchase is 'viewed as neutral to slightly positive' with possible synergies with its experience in the niche luxury retail segment, DBS Vickers analyst Lock Mun Yee says in an Oct 30 report. She kept a 'hold' rating on the stock.

Rig builder Sembcorp Marine also helped to stem the fall in Q3 profits.

SembMarine posted a 73.2 per cent surge in net profit for the three months ended September to $141 million due to higher margins achieved.

DMG research analyst Serene Lim noted in a report last Wednesday that while some 'big ticket purchases' may be deferred due to the credit squeeze, 'contributions from ship repair and offshore or conversion projects are expected to stay strong as these segments are counter-cyclical'.

'Sembcorp Marine is on track for another record year,' she said, keeping a 'bull' call on the stock.

Sector peer Keppel Corporation earlier posted a 10.2 per cent increase in Q3 net profit to $273 million, thanks to stronger revenue contributions from its offshore and marine (O&M), as well as infrastructure divisions.

But Ms Lim noted on Oct 24 that the O&M sector would see considerable slowdown in new rig orders as owners would shun fleet expansion due to tight credit. She kept a 'neutral' recommendation on the stock.

Out of 132 firms, 48 reported a drop in net profit on a year-on-year basis, while 64 improved their earnings. Some 10 firms slipped into the red this quarter.

Net profit for the nine months ended September is down slightly by 5.9 per cent at $14 billion.