Earnings alerts paint grim picture for Hong Kong-listed firms
Signs of recovery on the mainland are yet to feed into improved fortunes for many HK-listed firms, especially in retail and manufacturing
Hong Kong-listed companies have issued almost 50 warnings over the past month about substantial profit declines or losses as the mainland economic recovery continues to look shaky.
Although the mainland's economy has shown signs of life, corporate earnings have not recorded a significant improvement in the first quarter of this year. Of the 1,558 listed companies on the main board and Growth Enterprise Market, 48 issued profit warnings in the month to May 14. This compares with 42 profit warnings issued for the same period last year.
The warnings have alerted investors that earnings are likely to be disappointing, with some expecting a pessimistic outlook for the rest of the year.
"The quarterly performance of listed companies has continued to get worse," said Castor Pang Wai-sun, head of research at brokerage firm Core Pacific-Yamaichi.
"Companies' operations have yet to see improvement in various industries, but some companies didn't report significant losses or profit declines when compared with the corresponding period last year after their business had started to deteriorate [in the last quarter of 2011]," Pang said.
The manufacturing and retailing sectors are particularly vulnerable to the economic weakness.
Even the media sector did not escape unscathed.
Next Media, the newspaper-to-television media firm controlled by Jimmy Lai Chee-ying, warned of a substantially widening loss in the latest fiscal year to the end of March, due largely to operating losses on the group's television and multimedia operations in Taiwan and its free newspaper Sharp Daily in Hong Kong.
Analysts said the performance of fashion retailer Esprit had disappointed many investors. The company, which will be removed from the benchmark Hang Seng Index, said it expected to record a substantial loss in the second half of its financial year to June.
Linus Yip Sheung-chi, a strategist at First Shanghai Securities, said that the weakened retail market was one of the reasons that had dragged down the performance of Esprit, while its costly restructuring plan was another.
The frequent changes in management would also hurt investors' confidence and the sustainability of the company's strategies, he said.
In particular, the manufacturing sector was still under de-stocking pressure as demand remained weak, he said.
Recent economic indicators have revealed that the mainland's manufacturing sector is sluggish. The official purchasing managers' index for the manufacturing industry dropped unexpectedly in April to 50.6 from 50.9 in March.
Fashion producer Tungtex said in its profit warning notice that it expected a net loss for the year to the end of March partly because of a decrease in sales due to unfavorable macroeconomic factors.
Daiwa Associate, which produces and distributes electronic components and consumer electronics, said it expected to slip into the red for the year to March from the previous year because of high production costs and decreased sales and margins.
In addition, the drop in prices of building materials such as cement and steel has also taken a toll in related companies.
Cement producer BBMG had warned of a loss for the three months to the end of March before its first-quarter report, which revealed a net loss of 61.2 million yuan (HK$76.6 million).
Besides the manufacturing sector, Pang said the outlook for steelmakers would remain bleak as the Chinese government was unlikely to launch measures to boost investment in infrastructure.
"I don't expect an improvement this year as steel prices will remain weak," he said.