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Listed companies report sparkling results; 2008 may be a different story.

The results have been good, but the celebrations are on hold.

While many companies here can point to healthy report cards for their fourth quarter and full-year results, the market is not excited. Instead, investors look ahead to the challenges that could affect corporate profits in the year ahead.

The weakening US dollar and the uncertain economic outlook will have a negative bearing on earnings going forward, analysts said.

For 2007, 398 listed companies reported combined net profits of $36.3 billion. The total profits for 382 companies with year-on-year comparisons jumped 46.4 per cent to $35.7 billion.

During the Oct-Dec quarter, 227 companies reported their quarterly results, chalking up total net profits of $12.5 billion. Of these, the 215 companies who could compare their performance with the same quarter last year marked a 73.3 per cent rise in net profit to $12.15 billion.

‘Despite strong profits, the market is not responding,’ Westcomb Securities research head Goh Mou Lih said. The Straits Times Index, which has been recently tracking external factors more than earnings newsflow here closed 47.7 points down to 3,026.45 yesterday.

‘People are looking forward, instead of looking at the released numbers. They are expecting weaker earnings on concerns over the US economy and factoring in a higher risk premium,’ he added.

Some analysts are already lowering their earnings forecasts for this year.

‘Revenue growth will definitely slow as the economy slows and earnings would likely come under pressure this year,’ Citi economist Kit Wei Zheng said. ‘It’s probably going to be more challenging environment with costs pressures building up and margins will probably be squeezed on some fronts.’

Local banks reported a combined net profit of $6.46 billion for the full year, down 5.6 per cent from a year ago. OCBC, the smallest lender, reported the biggest percentage gain of 3.4 per cent to $2.07 billion. DBS recorded a 0.4 per cent increase to $2.28 billion, while UOB posted an 18 per cent fall in net profit to $2.11 billion.

But each of them saw a decline in their fourth quarter earnings from a year ago due to further writedowns for their exposure to collateralised debt obligations (CDOs).

‘I think CDOs are behind us. We will probably see very good loan volumes coming through given that both the IRs (integrated resorts) have syndicated credit facility of $5 billion each, and that should show up in the next few quarters,’ CIMB-GK research head Kenneth Ng said. ‘But margins should be something to watch out for,’ he added, pointing to the likelihood of further Fed rate cuts that could lower interest rates here.

Property developers still held up well in the fourth quarter on fair value gains and brisk residential sales despite the US subprime fallout, with major developers still racking double-digit and triple-digit jumps in net profit.

For the full year, CapLand’s net profit surged 172.5 per cent to $2.76 billion, the highest profits made by any Singapore-listed company last year. KepLand’s net profit for 2007 grew a staggering 289 per cent to $779.65 million and CityDev’s net profit more than doubled to $724.99 million from $351.66 million.

Analysts said they expect property developers, particularly those with strong financials, to delay residential launches to fetch better prices. KepLand has confirmed that it has pushed back the launch of Marina Bay Suites, while CapLand, which has little stock of unsold homes, said it will not delay its residential launches in Singapore this year.

CIMB-GK’s Mr Ng said he expects developers to continue rolling out mass market projects for which demand is reportedly strong, while holding back launches of high-end ones.

Meanwhile, oil and gas players were also buoying on robust order books last year. Among them, Keppel Corp’s net profit for 2007 leapt 50.6 per cent to $1.13 billion, Cosco Corp’s added 63.9 per cent to $336.57 million and Yangzijiang’s jumped more than two-fold to $171.29 million from $89.51 million.

Though SembCorp Marine’s fourth quarter net profit tanked 99.2 per cent to $790,000 on allgedly unauthorised forex transactions, its earnings for the full year was still up 1 per cent at $241 million on higher turnover and operating margins.

While index-linked companies generally performed well, some Singapore-listed Chinese firms disappointed the market in the face of rising costs pressures. Steel maker Delong Holdings’ net profit sank 29 per cent last year to $93.76 million and Pine Agritech posted a 19 per cent decline to $85.79 million.

The weakening US dollar also continued to trigger translational losses for tech companies whose earnings are dominated in US dollars. Unisteel Technology saw 2007 net profit fall 6 per cent to $47.5 million from a year ago after forex losses offset the growth in its revenue. Hi-P managed to pull out a 4.4 per cent gain in earnings to $60 million, despite incurring a forex loss of $5 million.

Source : Business Times - 1 Mar 2008