Singapore’s Straits Times Index Down On Mixed Q2 Financial Results

Singapore stock market remains under pressure as companies continue to report mixed second quarter financial results. Investors sentiments on the overall stock market appear to have taken a hit following consecutive days of losses.

The downturn does not come as a surprise given that the global forecast for the Asian markets has turned negative precipitated by developments across the region. Concerns over the health of the Turkish economy following a major standoff with the U.S as well as a drop of crude oil prices all but continues to exacerbate the situation.

After a stellar performance in the first half of the year, the Straits Times Index has come tumbling as sentiments in the overall stock market turn south. The index has also come under pressure in recent days on companies failing to meet expectations on Q2 financial results after a spectacular first quarter.

Q2 Financial Results

Banking Sector

Outlook in the banking sector appears to have taken a hit this year following the implementation of stringent curbs on the property sector. A slowdown in economic growth because of international trade tensions also appears to have affected business in the sector.

DBS Bank

DBS Group kick-started the earning sessions in the banking sector by reporting a 20% increase in net profit. The increase however missed expectations attributed to lower business volume in the quarter as well as lower trading income.

“Amidst heightened uncertainty and market volatility, business momentum was sustained in the second quarter,” DBS CEO Piyush Gupta said in a statement.

Net profit came in at S$1.37 billion compared to $$1.14 billion reported last year. Analysts were expecting a net profit of S$1.47 billion. Second quarter net profit was 10% below first quarter record highs, due to weak trading performance as well as a lack of property disposal gain.

The bank has since cut its full-year loan growth forecast from 8% to between 6% and 7%. DBS intends to pay a dividend of S$1.20 for the full year.

Oversea-Chinese Banking Corp OCBC

Unlike DBS Group Holdings, Oversea Chinese Banking Corp reported financial results that beat estimates by 16%. The bank attributes the stellar performance to increased loan volumes and higher net interest margins.

Net profit for the three months ending June 30, 2018, came in at S$1.21 billion versus S$1.04 billion. Net Interest margin which is a crucial gauge of the bank’s profitability increased by 2 basis points to 1.67% from 1.65% reported a year ago. Net interest income, on the other hand, rose 8% to S$1.45 billion. The bank has since declared an interim dividend S$0.20 per share for the first half of the year.

Looking forward, the banks Chief Executive Officer, Samuel, Tsien has warned that the operating environment in the banking is becoming increasingly challenging. The executive has since cautioned that escalating trade and political tensions could take a toll on operations, which could hurt earnings going forward.

United Overseas Bank UOB

United Overseas Bank had a stellar second quarter just like OCBC. The bank reported 28% increase in earnings that came in at $1.08 billion, bringing earnings for the first half of the year to a new record high of $2.05 billion, representing a 24% year over year increase. Net interest income was up by 14% in the quarter to $1.5 billion.

Unlike the other two banks, UOB sees little impact on the recent property cooling measures on loan growth. Analysts expect the bank to register an 8% increase in loan holdings in 2018, which could drop to 5% next year. UOB has the largest exposure to property lending in the banking sector.

The bank has since declared an interim dividend of 50 cents a share

Telecommunication Sector

A change of competitive dynamics with the entrance of a fourth player appears to have taken a toll on incumbents in the telecommunication sector. The sector has underperformed the overall market, a trend expected to continue as Australia’s TPG Telecommunication expands its footprint into the country.

SingTel

Singtel reported disappointing financial results for the quarter ending June 30, 2018. The country’s largest Telco reported a 6.6% year on year drop in net profit that came in at $832 million. Revenue in the quarter was down by 0.5% to $4.13 billion as earnings per share fell to 5.09 cents from 5.45 cents reported a year ago.

Mobile service revenue in Singapore was down by 4% attributed to a continued voice to data substitution. The company has attributed the disappointing financial results to intense price competition especially in India and Indonesia as well as adverse currency impact and economic interest in NewLink NBN Trust.

M1

Unlike Singtel, M1 reported stellar second quarter financial results helped by growth in postpaid and fixed service revenue. Earnings for the three months ended June 30, 2018, came in at S$36.2 million as operating revenue increased by 1.7% to S$253.2 million. Earnings per share in the quarter came in at 3.9 cents from 3.8 cents reported last year.

Mobile service revenue in the quarter inched higher by 3.8% to S$146.2 million as post-paid customer base increased by 34,000 new users. Despite registering stellar performance in the first half of the year, the company has warned that its earnings could take a hit in the second half of the year

Entry of a new player in the sector according to the company could have a negative impact on earnings as expenditure on marketing, and seasonal promotions will have to come into play in a bid to protect market share.

Starhub

Starhub is another company that had a disappointing second quarter. The company reported a steep drop in earnings that skid 22.8% to $61.7 million despite turnover increasing by 5.4% to S$ 597.3 million. Service revenue increased by 0.75 to S$466.8 million.

Second quarter earnings per share slipped to 3.5 Singapore cents from 4.6 Singapore cents reported a year ago. Net profit for the first half of the year, on the other hand, fell 19.9% to S$124.7 million even on revenue increasing by 0.1% to S$1.16 billion.

Competition with the entry of a new player is the biggest threat to the company’s earnings going forward as the race for customers is poised to inch a notch higher.

Retail Consumer Sector

Retail stocks just like companies in the telecommunication sector also posted mixed second quarter financial results, amidst concerns of slowing economy after a stellar performance last year. Brick and mortar retailers in the country are racing against time to try and counter the threat posed by e-commerce platforms.

Dairy Farm

Dairy Farm reported disappointing financial results for the first six months of the year. Net profit fell 17.7% to $214.8 million, compared to $260.9 million reported a year ago. Revenue, on the other hand, was up by 5.1% to $5.93 billion thanks to higher sales in the health and beauty sector.

The company’s food division experienced higher rental and labor costs in Hong Kong something that hurt the bottom line. Despite the disappointment, Chief Executive officer reiterated belief of a strong performance in the second half of the year.

Jardine Cycle & Carriage

Jardine Cycle & Carriage with a strong automotive presence reported a 56% year over year decline in net profit for the first six months of the year that came in at $174 million. Earnings per share for the period dropped to $0.44 from $1.01 reported a year ago

Revenue for the first six months of the year rose 10% to $9.19 billion. The company has since declared an interim dividend of $0.18

Others

CapitaLand Mall Trust

CapitaLand Mall Trust had an impressive second quarter despite the challenges that came calling in the property sector. The country’s largest Real Estate Investment Trust posted a 1.6% year over year increase in gross revenue that came in at S$171.4 million. The REIT attributes the growth to higher gross income from higher occupancy rates at Plaza Singapore, Bedok Mall as well as Tampines Mall.

Net Income, on the other hand, increased 2.8% to S$120.8 at the back of lower operating income that fell 1% year-on-year. The total amount of money available for distribution to unitholders increased by 2.9% to S$100 million as distribution per unit rose 2.2% to 2.81 Singapore cents.

Willmar International

Agribusiness giant Willmar International reported stellar second quarter financial results depicted by a fivefold increase in net profit. The company says its net profit soared to $316.4 million from $59 million reported a year ago.

Revenue in the quarter was up 1.9% to $10.8 billion. Earnings per share, on the other hand, rose to 5.0 US cents from 0.9 cents reported a year ago. Willmar international attributes the impressive financial results to stronger performance of its Oilseeds and Grains segments. The two units outperformed by 381.2%, thanks to an increase in soybean crushing volumes.

The agribusiness giant has since declared an ordinary interim dividend of S$0.035 cents per share an increase from S$0.030.

Bottom Line

Mixed financial results across all the major sectors explain why Singapore’s Strait Times index is trading lower in the market. The index is down by more than 10% for the last three months. The sell-off, while a point of concern, might as well have presented an opportunity for investors to buy on the dip.

(By Neha Gupta)

Related Articles
- Singapore Could Lose Up To $22 Billion On Full-Blown Trade Wars
- Trade Mobile & Win A Mobile
- Strategies For Trading Bitcoin In Volatile Markets