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Asia Q2 earnings to reflect downturn; H2 recovery eyed

Asia Q2 earnings to reflect downturn; H2 recovery eyed
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First Published: Mon, Jul 13 2009. 05 07 PM IST
Updated: Mon, Jul 13 2009. 05 07 PM IST
Seoul: Sluggish consumer demand and concerns about the strength of a possible second-half recovery are the main issues surrounding Asian companies’ second-quarter results. Following is a sectoral summation of what to expect.
Technology
Most Asian tech firms, from memory-chip makers to handset vendors, are still feeling the effects of the global financial crisis, which has weakened demand for electronics and gadgets. Brisk demand for flat-screen TVs in China and Japan, spurred by stimulus measures, likely helped Japanese electronics makers trim their losses in the latest quarter.
But profitability at major high-tech exporters such as Sony Corp, Panasonic Corp and Sharp Corp has remained under pressure because of a strong yen, and further yen gains against the dollar this month bode ill for companies’ near-term outlook.
Any earnings turnaround this year is expected to be mild as the electronics industry lacks strong growth products, in contrast to the decade’s start, when mobile phone demand hastened the sector’s recovery from the Internet bust.
The worst may be over for the memory chip industry, which has been ravaged by two-and-a-half years of low demand and plummeting prices, thanks especially to a more stable market for dynamic random access memory (DRAM) chips, which are used widely in PCs.
But the end of the downcycle isn’t expected to translate into any sudden windfall for the industry, where only market leader Samsung Electronics is set to report a divisional profit for the quarter.
World No.2 Hynix Semiconductor should post a smaller operating loss and even swing to a profit later this year, but Toshiba Corp and Elpida Memory are expected to stay mired in losses this year.
Major chip foundries saw a better second quarter versus the first as demand for PCs and consumer gadgets recovered. TSMC probably booked a bigger profit after second-quarter sales jumped 88%, and UMC is expected to return to profit in April-June after three quarters in the red.
Sales growth could slow in the third quarter, and it could be a one-man TSMC show into next year if other second-tier players, including Chartered Semiconductor and SMIC fail to invest more in technology. Samsung and LG Electronics, the world’s No.2 and No.3 cell phone makers, are expected to pick up market share and show strong second-quarter performance, helped in part by a weak Korean won which at end-June was still 18% cheaper than a year earlier against the dollar.
The liquid crystal display (LCD) sector, one of the few tech sector bright spots, is restarting production lines and securing raw materials after sharp output cuts in late 2008 resulted in a shortage of panels this year.
Samsung and LG Display are set to return to profit in April-June, while Taiwan rivals AU Optronics and Chi Mei Optoelectronics are seen reporting significantly smaller losses than prior quarters.
In the telecom sector, China Mobile, the world’s largest mobile carrier by users, leads a sector battling falling average revenue per user, rising costs from the rollout of third generation (3G) mobile services and the slow economy.
Analysts polled by Reuters Estimates expect a modest rise in profit from a year ago in the second quarter and second half for China Mobile, but falling fixed-line users will weigh on smaller rivals China Unicom and China Telecom.
In India, robust subscriber additions in the world’s fastest-growing wireless market should boost revenue growth at Bharti Airtel and Reliance Communications, but falling call tariffs will weigh on profitability.
Bharti Airtel, which is in talks with South Africa’s MTN to become one of the world’s biggest telcos, should see its profit rise by around a fifth from a year earlier.
Financials
In the financial sector, bad loans and smaller fee income are expected to squeeze April-June earnings, but signs of economic improvement point to a better performance later this year.
Japan’s top three banks Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group are all expected to return to profit after posting hefty losses in the year to March. But all are likely to see little growth from the same period a year earlier.
Japan’s big banks predict a rebound in the value of their equity portfolios and an improvement in the country’s economy. Singapore banks are likely to post double-digit falls in second-quarter profits, hit by higher bad debt provisions and a drop in fees. But the second half should improve as the economy picks up and the city-state’s moribund property market shows signs of life.
India’s banking sector should post healthy profit growth thanks to treasury income, primarily from trading in bonds. But operating income will remain subdued, dented by slower loan growth and lending rate cuts. Top lender State Bank of India is expected to report net profit grew 22.5%.
Chinese banks’ profits are seen flat in the second quarter as lower interest margins offset a surge in new loans.
Autos, Steel, Energy
Japan’s auto sector is expected to mark an improvement from the previous quarter, when production at most companies hit a bottom while cars were sold off bloated inventory.
Production levels have remained low and consensus forecasts have Toyota Motor Corp, Honda Motor Co and Nissan Motor Co all posting a loss. Small-car maker Suzuki Motor Corp, however, should show a quarterly profit, helped by its presence in the growing Indian market.
Analysts expect further improvement in July-September as production gradually picks up, helped by demand-boosting incentive programmes rolled out by governments around the world.
April-June results at South Korea’s Hyundai Motor should be helped by a still-weak won and tax incentives aimed at boosting local car sales. Hyundai is expected to post a profit in the second half thanks to the launch of new models.
April-June should prove the 2009 low point for Asia’s big steel firms, after the industry’s worst downturn in decades. Steelmakers cut production by as much as half in the first half, but are now cranking up output as manufacturing demand picks up.
Nippon Steel and JFE remain the hardest hit by the downturn and are seen posting heavy losses in April-June, but China’s Baosteel raised domestic prices for July and plans to increase them again for August, brightening its earnings prospects for the rest of the year.
China’s three largest oil companies should report stronger quarterly profits in late August, on rising oil prices and fuel-pricing reforms, and analysts expect even better results in the coming quarters. Oil prices averaged about $60 a barrel in the second quarter almost double the level in January.
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First Published: Mon, Jul 13 2009. 05 07 PM IST