What to expect from the Q3 results season

What to expect from the Q3 results season
The Business Times 18 October 2007)

Analysts see 'decent' earnings from banks, but tech sector likely to disappoint.

THE fallout from the sub-prime housing woes in the US. Exposure to collateral debt obligations. The effect of the weakening US dollar. These are just some of the questions on investors' lips as listed companies prepare to announce their third-quarter results in the coming weeks. Thanks to a still-robust global economy, the lessening dependence of companies on US exports and the growing dominance of China and India, local companies are expected to produce good report cards for the third quarter. 'Overall, the results for Q3 should be good and is likely to meet our expectations,' said Kevin Scully, managing director of NRA Capital, adding that the still-buoyant global economy was propping up the growth. He pointed out, however, that what he was more interested in was 'forward-looking statements' revealing how companies will be dealing with on-going issues. 'I'm more interested in finding out how the higher cost of capital and the weakness in the US dollar will impact the companies.' Indeed, the three local banks' results will undoubtedly be scrutinised as investors clamour to find out how they have been impacted by the recent financial market turmoil. The biggest of the banks, DBS, will be the first among the three to release its results on Oct 26, followed by United Overseas Bank (UOB) on Oct 30, and OCBC on Nov 6. Analysts expect Q3 earnings growth to be 'decent', but warned of large provisions the banks might make for any losses from their exposure to collateralised debt obligations, or CDOs. Analysts said that the market value of these debt securities may have fallen by half since the credit crisis began in August, which has caused the market for such instruments to dry up. One sector that is likely to disappoint is technology, said Mr Scully. This sector has been in a slump for the past few months. Except for consumer electronics, shipments of all the major electronic products registered double-digit year-on-year decline in September, according to figures for non-oil domestic exports (NODX). A UOB economic research report said that the weak electronics NODX in September suggested that recovery in the electronics sector could remain shaky in the coming months, compounded by an uncertain outlook in the global economic environment. On the other end of the spectrum, one sector that is expected to perform well is energy and marine. Rocketing oil prices, demand for rigs, and growing order books have reflected the boom in this robust industry. Companies in this sector are likely to show good results, starting with Keppel Corp which is releasing its results on Oct 25, followed by SembCorp Marine on Nov 1. With frenetic activity in the property market, strong demand for more hotels and local property boys venturing further afield, it seems that property counters can do no wrong. However, all eyes will be on whether stock market jitters caused by sub-prime problems in the US will have any effect on profitability in the future. Last month, sales of new homes slowed tremendously, and was said by property analysts to be the lowest monthly figure in the past four years. Property companies Keppel Land and CapitaRetail China Trust will release their results on Oct 23. Mapletree Logistics reports on Oct 25, while CapitaLand and Ascott Group will report earnings the next day. City Developments will announce earnings on Nov 14. Some 230 companies are expected to report their Q3 results even though there are 495 companies with a December financial year-end. This is because companies with a market capitalisation of $75 million and below - in view of the higher relative costs for smaller firms - are exempted from reporting quarterly results. All listed companies, however, have to report their first-half and full-year results.