Published March 9, 2009

Earnings forecasts cut on poor Q4 results

This comes after 229 firms' total earnings crashed 87.3% for Q4 of 2008

By OH BOON PING

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ANALYSTS have slashed their earnings forecasts following the disappointing results season that saw profit crashing in a number of Q4 reports.

Weakening economy: DMG & Partners cut its earnings forecast by over 5per cent for 63per cent of the companies under its coverage

OCBC Investment Research said it now projects a 17 per cent decline in 2009 earnings per share (EPS) for the stocks under its coverage with a more modest decline of 2 per cent in 2010.

'This is down from a decline of 10 per cent just a month ago for FY09 earnings. Overall, this means that we have grown significantly more negative after the recent FY08 result season.'

Similarly, DMG & Partners cut its earnings forecast by over 5 per cent for 63 per cent of the companies under its coverage.

For example, projection for DBS was cut as much as 20 per cent with higher provisions and lower fee and commission income being the key reasons.

DMG also slashed property companies' FY09 net profit by as much as 30 per cent for both Capitaland and Keppel Land.

CIMB analyst Kenneth Ng said the brokerage now expects the STI earnings to contract 21.5 per cent year-on-year in FY09 - up from the 13.7 per cent forecast made a quarter ago.

The bleak forecasts came after the total earnings posted by 229 companies for the fourth quarter of 2008 crashed 87.3 per cent year-on-year to $1.51 billion.

Three-fifths of the companies registered a net profit. Of these, about 65 per cent reported smaller gains. Of the 88 companies that reported a net loss, 67 or three-quarters swung from profit to loss.

In his report, Mr Ng said that 'in the last four bear markets, STI earnings fell 28 per cent on average in 1997/98, 2001 and 2003. Another cycle of downgrades could take place after 1Q, but after that, sell-side estimates should more or less reflect reality.'

OCBC cited the bleak guidance from most corporates, adding that profits may be hit by higher expenses and higher provisions, among other deteriorating factors.

Plus, the research house pointed out that Singapore's economy could contract by as much as 10 per cent in 2009.

CIMB observed that order flows for manufacturers have fallen as much as 70 per cent, while residential tenants are starting to default. 'Ship orders are being rescinded. Airlines are pulling back capacity and cutting fares. In short, the world has had to deal with much lower demand in a very short time and the great deflation we flagged at end-2008 has simply taken off.'

'In such an environment, cash returns beat almost all asset classes. It is difficult to be anything but bearish right now.'

According to DMG, it will avoid SGX, DBS, Keppel Land, Cosco and Parkway among the big-cap stocks, as the economic downcycle could adversely affect their future earnings.

'Smaller cap stocks to avoid include Swiber, First Resources and Sino Techfibre.'

OCBC continues to favour the telco stocks and selective blue chips including SembCorp Marine and Ezra.