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One in four of those which have released full-year results in loss territories

ALTHOUGH the majority of Singapore companies are still profitable - based on full-year results announced by listed companies with a March 31 year-end - inflationary pressures have hit the bottom lines of many companies here as they wrestle with higher operating costs and cautious consumer spending. And analysts have sounded a note of caution.

Eighty-one of the listed companies with a March 31 year-end have announced their full-year results. Although 61 companies, or 75 per cent, showed profits, a sizeable 20 companies or a quarter were in loss territories.

The 81 companies recorded combined net profits of $7.959 billion. Of the 81, the 75 with available year-ago comparative figures showed a 7.5 per cent rise in total net profits to $7.958 billion.

Of these 75 firms, 25 or a sizeable one-third performed worse than a year ago: 15 saw lower profits, seven swung from a profit to a net loss and three suffered wider losses. A bright spot is that 36 firms managed to achieve higher profits, six swung from losses to profitability and eight saw lower losses.

Corporate earnings weakness will persist should there be a further build-up of inflationary pressures, analysts said.

This also probably explains why fast-rising prices are replacing slowing growth as the government’s main worry.

The transport sector has suffered the most severe earnings downgrades, as analysts priced higher oil price assumptions into their models.

‘This is part and parcel of an inflationary theme,’ said Stephanie Wong, regional head of research at Kim Eng.

‘We do see that in the next few quarters, we will see more pressure on the companies’ margins because of the inflationary pressures.’

Faced with higher fuel prices and a global air traffic slowdown, Singapore Airlines’ full-year profit dipped 3.7 per cent from a year ago to $2.05 billion.

But it managed to beat analysts’ forecasts of a fall of about 10 per cent to an average of between $1.9 billion and $1.93 billion.

SIA’s operating expenditure went up 5.1 per cent to $13.85 billion, driven mainly by higher fuel costs and aircraft maintenance and overhaul costs.

Land transport operator SMRT, however, put up a strong showing, with a 10.7 per cent rise in net profit to $149.94 million as revenue rose 7.9 per cent to $802.12 million, underpinned by earnings growth from train, bus and taxi operations and advertising business.

Singapore Telecom, which led the pack of companies reporting full-year results, lifted net profit 4.8 per cent to $3.96 billion as operating revenue grew 11 per cent to $14.84 billion, thanks to new mobile additions and stronger Australian dollars perking up contributions from Optus.

Retailers had a mixed showing, with luxury retailers performing better than the rest.

Driven by stronger sales and better margins, The Hour Glass enjoyed a 63.8 per cent jump in net profit to $30.53 million, while Cortina’s net profit surged 147.6 per cent year-on-year to $9.7 million.

But Metro Holdings’ net profit slipped 4 per cent to $65.97 million due to a higher tax bill, while CK Tang’s full-year net loss widened from $590,000 to $2.19 million, reflecting high start-up costs of Tangs Pavilion and the first full-year of operations of Tangs VivoCity.

‘Certainly, wage increases are not fully offsetting inflation and inflation numbers quoted are much lower than what we feel on the ground,’ said CIMB-GK head of research Kenneth Ng.

While inflationary pressures have a greater impact on mass consumers, the slowdown in spending has been somewhat cushioned by continued job creation and the lack of drastic job cuts here, he added.

Meanwhile, some firms are still riding the infrastructure wave. Boustead posted a 46 per cent jump in net profit to a record $51.49 million for the year ended March 31, with real estate being the star-performing unit.

Tat Hong posted a 13.7 per cent rise in net profit to a record $89.79 million on rising rental and utilisation rates of its cranes and strong contributions from acquisitions.

But going forward, analysts said that they may have to adjust earnings estimates further should inflationary pressure get ahead of expectations.

‘We have already seen some downward adjustments in terms of net profit forecast for 2008 and 2009,’ Ms Wong said.

‘There could be more adjustments coming on stream if the inflation theme remains strong and there’s no way companies will be totally unaffected.’

Source : Business Times - 31 May 2008

Surging inflation will ease in the second half of the year despite spikes in global food and oil prices, said Trade and Industry Minister Lim Hng Kiang.

He was responding to a question from Non-Constituency MP Sylvia Lim yesterday on the inflation outlook for this year.

Mr Lim said: ‘It is still our central scenario for an easing off of inflation in the second half of the year. Domestically, the impact of the goods and services tax (GST) rise will ease off in July, while externally, the run-up on food prices is expected to ease in the second half.’

The Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore revised their full-year inflation forecast last week to between 5 and 6 per cent - up from an earlier estimate of between 4.5 and 5.5 per cent - citing dearer food and oil. Inflation last month hit a 26-year high of 7.5 per cent.

But the revised forecast remained consistent with the earlier expectations of a second-half cooling off, the MTI said.

While Mr Lim admitted that it was impossible to insulate Singapore from higher global prices, he said that the Republic’s exchange-rate-centred monetary policy, which has been in place since 1981, remained effective in staving off the full impact of global inflation.

He said that domestic inflation had been low over the sustained period between 1981 and last year, averaging 1.7 per cent. By contrast, inflation averaged 5.5 per cent for the Organisation for Economic Cooperation and Development (OECD), a 30-strong group of the world’s richest countries.

The exchange-rate policy of maintaining a strong Singapore dollar also helped to reduce the cost of imports, Mr Lim said. ‘For example, between January last year and March this year, global food prices - measured by the International Monetary Fund’s food price index - surged 50 per cent, whereas the domestic cost of food imports rose by a much lower 14 per cent.’

Opposition MP Low Thia Khiang (Hougang) raised the possibility of cutting taxes, such as the GST and the petrol tax, to help Singaporeans cope with rising prices.

But Mr Lim said that a multi-pronged solution was more desirable: ‘It is not useful to tweak the GST rate in response to short-term phenomena and we have adopted an approach aimed at the medium term.’

This approach, announced in February, includes the diversification of food sources to minimise spikes in prices due to supply disruptions.

At the same time, the Government is providing direct assistance to Singaporeans, especially those in the lower- and middle-income groups, who are affected by the higher cost of living, said Mr Lim.

Source : Straits Times - 27 May 2008

Production in April down 5.7% as US-led economic slowdown affects global demand

MANUFACTURERS in Singapore suffered their biggest slump in 10 months with a surprise fall in output last month.

Industrial production declined by a sharp 5.7 per cent - adding to signs that the United States-led global slowdown is starting to hurt factories in the Republic, analysts said.

The contraction snapped an impressive start to the year by local manufacturers, which had been accelerating production to hit March’s 18.1 per cent output increase.

Last month’s poor showing was led by the two biggest segments of the local manufacturing scene.

Sharp falls in electronics and drug output outweighed a robust 15.1 per cent increase in rig- and ship-building.

‘This is further evidence that the slowdown in the US is steadily spreading to the rest of the world,’ said Citigroup economist Kit Wei Zheng.

‘We expect output and exports, especially in electronics, to remain soft for the rest of the year on tepid global demand, exacerbated by the lagging impact of the Singapore dollar’s appreciation.’

Yesterday’s weak data caught almost all private-sector economists in Singapore by surprise.

A Bloomberg News poll of 11 analysts found a median estimate of 6 per cent growth. Just one, Standard Chartered Bank’s Mr Alvin Liew, predicted a contraction - of 4 per cent.

Throwing off the forecasters was the volatile pharmaceutical industry, whose unpredictable plant shutdowns between production cycles typically bamboozle even the most prescient of oracles.

This time round, a different mix of active drug ingredients produced caused output to shrink 27.9 per cent, said the Economic Development Board, which compiles the monthly factory data.

By contrast, pharmaceutical output was surging at above 20 per cent rates in the first quarter, hitting 101.8 per cent in March.

But wild drug swings notwithstanding, the overall mood at local factories is negative.

‘The sharp decline although exaggerated by the steep fall in the biomedical sector, does signal an overall moderation in activity,’ wrote Goldman Sachs analysts Mark Tan and Michael Buchanan.

Electronics, still the mainstay of manufacturing, declined 5.1 per cent, dragged down by a 7.4 per cent fall in chip production and a 25.1 per cent reduction in infocommunication and consumer electronics output.

‘We expect industrial production growth to remain soft in the coming months as the cyclical electronics sector is likely to extend its contraction given its vulnerability to weakening global demand,’ said United Overseas Bank economist Ng Shing Yi.

Citigroup’s Mr Kit added that a downward revision last Friday of the official forecast for domestic exports this year suggests that manufacturing numbers ‘won’t look pretty for the year’.

Goldman’s Mr Tan and Mr Buchanan said that fears over slowing growth could even restrain further monetary measures to fight inflation.

While rising prices should still prompt the Monetary Authority of Singapore to keep monetary policy tight, fears over slowing growth may be enough to keep it from moving to allow for a faster Singdollar appreciation at its next scheduled policy statement in October, they said.

Source : Straits Times - 27 May 2008

Govt raises 2008 inflation estimate to 5-6%

Inflation has hit 7.5 per cent and may average 6 per cent for the year, but economists believe the rising prices will not derail Singapore’s growth.

The government yesterday raised its forecast for 2008 consumer price inflation by half-a-point to 5-6 per cent, following a spike in the rate to 7.5 per cent in April - a 26-year high.

The revised forecast by the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) overshadowed the release of first-quarter GDP growth: at 6.7 per cent, Q1 growth is below market consensus and below the early official flash estimate of 7.2 per cent, though up from the preceding 2007 Q4’s 5.4 per cent.

MTI is maintaining the official GDP growth forecast of 4-6 per cent for the year, noting that the external slowdown is panning out pretty much as expected.

‘The critical uncertainty remains the US economy,’ MTI second permanent secretary Ravi Menon said at a news conference yesterday. ‘We’re looking at a recession or near-recession scenario that is not unlike the 2001 and 1991 experiences - may be close to about three quarters of weak or negative growth followed by steady recovery.’

The bottom line is: the US is already in a significant slowdown. While the worst seems over for US financial markets, a recurrence of Bear Stearns-type ‘financial accidents’ cannot be ruled out, MTI says. Another bout of financial turmoil would deepen and prolong the US economic slump.

Singapore faces both growth and inflation risks, ‘though probably the balance of risks has shifted towards inflation’, Mr Menon said yesterday.

‘Going forward, there remains a high degree of uncertainty on global food and energy prices,’ he added. ‘There could be some moderation in food prices towards the end of the year. On the flip side, unforeseen supply disruptions could just as well trigger a second round of increases in food prices.’

MTI’s latest forecasts see oil prices averaging US$110 per barrel over the year, up from US$94 in March and US$87 in February.

Over the next 2-3 months, Singapore’s inflation rate is expected to remain high - probably around current levels - but should start to ease in the second half of the year as the impact of the higher Goods and Services Tax (GST) wears off. At the same time, underlying inflation momentum appears to have plateaued, MTI notes.

And Singapore’s exchange rate policy - which Mr Menon described as ‘the main policy tool right now in our arsenal’ to fight inflation - will have a moderating effect. If not for the appreciation of the Sing dollar - which rose about 11 per cent against the US greenback last year, and a further 4-5 per cent so far this year - Singapore’s 2007 inflation rate would have been 2-2.5 points higher, MAS deputy managing director Ong Chong Tee told reporters yesterday.

Economists said the official GDP growth forecast remains intact, even as growth estimates of non-oil domestic exports have been pared to just 2-4 per cent.

They reckon, however, that inflation could exceed the official estimates - and warn of a wage and business cost spiral. Overall unit labour costs surged 8.8 per cent in Q1, and manufacturing unit business costs rose 3.3 per cent.

According to estimates by HSBC’s Asian economists, if the CPI continues to rise just 0.6 per cent every month between May and December in seasonally-adjusted terms, inflation would average 7.5 per cent for the year.

Source : Business Times - 24 May 2008

Food prices rose 8.5 per cent year-on-year in April, due mainly to dearer cooked food, milk products and some other items, the Department of Statistics said yesterday.

On the whole, last month’s consumer price index (CPI) jumped 7.5 per cent from a year earlier.

The prices of goods in all segments rose. The biggest increase was in housing costs, which surged 11.8 per cent due to higher accommodation costs and electricity tariffs. Excluding accommodation costs, the CPI rose 6.9 per cent year-on-year.

As a result of dearer petrol and higher taxi fares and car prices, the cost of transport and communication rose 7 per cent year-on-year in April.

The cost of recreation and other items was 4.5 per cent higher than a year earlier, while healthcare costs were 6.7 per cent higher.

The cost of clothing was a marginal one per cent higher, while education and stationery was 4.9 per cent dearer.

The CPI for the first four months of 2008 was 6.9 per cent higher than in the same period last year. Excluding accommodation costs, it was 6.2 per cent higher.

All indices except one went up in April compared with March. The exception was clothing and footwear, which dipped 0.2 per cent.

And on a seasonally adjusted basis, the CPI in April was 0.9 per cent higher than in March.

The CPI is based on 5,170 brands and varieties of goods. A weighting pattern is derived from the expenditure records of about 5,400 households, which represent the middle 90 per cent by spending of all households with two or more people.

Source : Business Times - 24 May 2008