Only weeks before the reporting season begins, many Chinese publicly traded companies have issued earnings alerts not only of lower profits than earlier projections, but also of worsening expectations for 2009.
To be sure, there are bright spots, like the pharmaceutical sector, in the corporate gloom. But companies in most other sectors are sounding the alarm.
Among the more than 500 listed companies that had posted their preliminary earnings reports, 40 percent are projecting profit declines or losses in 2008. Around this time last year, only 45 companies delivered such bad news.
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Earnings alerts were issued by companies in a wide range of sectors, including energy, power generation and raw material processing, which are facing unprecedented difficulties amid the global economic downturn.
So far, more than 18 companies in the petrochemical sector have disclosed loss estimates for 2008, the first time these companies were in the red since they went public. Another 16 companies in the same sector lowered their profit projections and another five said they expected losses for 2008.
Statistics from China Steel Industry Association show that 15 percent of nation’s steel processors posted an aggregate 12.7 billion yuan loss in November 2008. “It was a larger-than-expected loss for so many companies in the industry,” said Zhang Ping, a specialist on steel at Umetals, a domestic metal information consultancy firm. He predicted even harder times for China’s steel mills in the first quarter of 2009.
“Despite a possible demand increase thanks to the coming peak season, prices of steel and other metals would continue to fluctuate at low levels, which may largely affect corporate earnings in the first half of 2009,” Zhang said.
Industry experts said the weak performance of most listed companies would at least last for another one or two quarters in 2009, because it will take longer-than-expected to unload their large inventories, which they must dispose of at lower and lower prices.
“Listed companies’ earnings would remain depressed before an economic recovery and a pick-up in domestic consumption,” said Zhang.
The earnings of listed companies began to decline sharply from the third quarter of 2008, when both external and internal demands were depressed by the worsening global economic outlook.
Although companies in the banking and property sectors have not issued any preliminary reports, analysts predict they were hit just as hard.
The latest disposal by foreign financial institutions of their holdings of Chinese commercial banks is seen as an indication of lowering confidence in the prospects of the domestic banking sector, which is clouded by narrowing interest rate spreads and a possible rise in non-performing loan ratio.
There are some bright spots among the bleak earning data. For example, companies in the pharmaceutical sector, including medical services providers, are expected to post an average 25 percent increase in profit in 2008.
Analysts said companies in this sector are largely shielded from the economic cycles because of the inelastic demand of their products and services.