Trading in Shenzhen Development Bank (SDB) shares was suspended yesterday after media reports that China Development Bank (CDB) planned to acquire a stake in the former.

The mid-sized Chinese lender’s stock touched the 10 percent daily limit to 14.99 yuan, before trading was suspended in the afternoon.

CDB has sent an acquisition plan to the China Banking Regulatory Commission (CBRC), the country’s banking regulator, the Economic Observer reported.

China Development Bank denied the report, saying it has no plans at present to buy Shenzhen Development Bank or other banks, it said.

US private equity firm Newbridge Capital, the lender’s largest shareholder’s share lock-up period expires this year. This has led to speculation that Newbridge may exit the bank. SDB shares would resume trading after CDB publishes a statement, the Shenzhen-based lender said.

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.

Earnings of Shanghai Pudong Development Bank doubled in 2008. [China Daily]

The 936 listed companies that have announced their earnings estimates have indicated that they expect steep declines or losses in revenue for 2008.

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Including the 56 companies that have released their annual reports, the 992 companies realized net profits of 172.2 billion yuan in 2008, a 43.74 percent decline year-on-year, according to Tianxiang Investment Consulting Co.

Tianxiang also estimated that companies in the coal, construction, communications, shipping and banking sectors are more likely to see a full-year growth for 2008, while the ones in hotel tourism, civil aviation, highways, insurance, securities, electricity, petrochemicals and steel industries may see a weakened business performance.

Among the top 10 companies in terms of net profits in 2007, six said their earnings would drop over 50 percent in 2008 with Huaneng Power International even predicting an annual loss.

Bucking the depressing financial results of the seven heavyweights mainly in insurance, petrochemicals and power industries, two companies in the banking sector have performed well.

Shanghai Pudong Development Bank said its earnings doubled in 2008 to touch 12.51 billion yuan while China CITIC Bank is expecting a 60-percent growth.

However, industry analysts said commercial banks, despite a good performance in 2008, appear headed for tougher climes this year due to narrowing interest spread and rising non-performing loans.

Everbright Securities Co said the earnings of the banking industry would drop 15 percent this year.

“Banking shares have already undergone an adjustment recently, reflecting the market concerns on further interest rate cuts and potential non-performing loans,” said Everbright Securities analyst Jin Lin, adding that the current interest rate is already close to a historic level.

The firm also estimated that the net interest margin (NIM) of banks would drop 43 basis points from the current 300 basis points this year.

“If the interest rate is cut further in the first-half, the NIM will drop another 20 basis points in 2010, which means the banks’ performance would be affected next year also,” said Jin.

To analyze the non-performing loans of the banking sector, the real estate industry also needs to be accounted for. So far, among the 64 real estate companies that have announced their earnings estimates for 2008, about 47 percent said they expect sharp declines or losses on falling revenue.

Industry experts said the performances have reflected the depressed state of the realty market in the country, marked by dwindling sales and falling prices.

According to Great Wall Securities, sales of commercial and residential properties in big cities, such as Beijing and Shanghai, have dropped about 40 percent year-on-year in 2008, while the sales in some second-tier cities, such as Nanjing, Hangzhou, Tianjin and Chengdu, fell about a half.

“The property market would take one or two years to recover and housing prices may drop another 10 percent in future. The real estate industry could touch a bottom this year, with earnings falling by 5 percent,” said Huang Qinglin, analyst, Great Wall Securities.

Industry analysts also said that the real estate sector could bottom out in the second half, with the recovery of macro economy, the rising sales in the traditional peak season in May and favorable policies, such as setting up of real estate investment trusts (REITs) to ease property developers’ cash constraints.

According to the earnings estimates for 2008, the performance of companies in coal and power sectors is in sharp contrast. Of the 23 companies in the coal industry, 19 reported an increase in earnings, while 30 of the 36 power companies said they would incur revenue declines or losses in 2008.

China’s stock market rebounded modestly on Thursday as news of government aid lifted steel and electronics shares. But turnover continued shrinking, suggesting that flows of fresh money into the market were drying up.

The Shanghai Composite Index, which had tumbled 4.72 percent on Wednesday, rebounded 0.78 percent on Thursday to close at 2,227.13 points, after hitting a high of 2,247.62.

But turnover in Shanghai A shares shrank to 108 billion yuan ($15.81 billion) from 134.9 billion yuan on Wednesday and 168.8 billion yuan on Tuesday.

Chinese equities continued rising Friday despite an overnight plunge on Wall Street, after the central government’s announcement of stimulus plans for the light industry and petrochemical sector Thursday night.

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The benchmark Shanghai Composite Index climbed 1.54 percent, or 34.35 points, to 2,261.48. The Shenzhen Component Index rose by a larger 2.56 percent, or 209.87 points, to 8,423.77.

Combined turnover was 173.41 billion yuan ($25.35 billion), slightly up from 170.65 billion yuan on the previous day.

Gainers outnumbered losers by 831 to 44 in Shanghai and 723 to 32 in Shenzhen.

The plans would benefit a wide-ranging industries, including home appliance production, leather processing, food manufacture and petrochemical industry, analysts said.

The support plans would lift processing trade restrictions on some labor-intensive, technology-intensive, energy-efficient, and environment-friendly products and further raise export rebates of some light industrial products.

The State Council, or the Cabinet, also decided to expand the home appliance subsidy program for farmers, with two more products - microwave ovens and induction cookers - to be added to the list.