Q1 corporate earnings show mixed trends

With the first-quarter Philippine corporate earnings results all out, the verdict is that this season is “unexciting” and “generally disappointing” but not necessarily reflective of deteriorating fundamentals, leading online stockbrokerage COL Financial said.

In a research note dated June 4, COL said half of companies it was monitoring had reported earnings that missed expectations in the first quarter. Those that delivered results in line with COL’s expectations accounted for 26 percent while 24 percent exceeded projections.

The big number of underperformers does not indicate deteriorating fundamentals, based on COL’s view. Those that posted first-quarter results that were lower than COL’s expectations were Bank of the Philippine Islands, China Bank, EastWest Bank, Philippine National Bank, Rizal Commercial Banking Corp., Union Bank, Atlas Mining, Cebu Pacific, EEI Corp., GMA7, ICTSI, Megaworld, NickelAsia, Philex Mining, Semirara Mining, Aboitiz Equity Ventures, Ayala Corp., Cosco, DMCI, GT Capital, SM Investments, Pepsi, RFM Corp., Robinsons Retail, Meralco, Century Properties and Puregold.

Out of these companies that missed estimates, COL noted that six were banks that underperformed due to lower-than-expected trading gains.

“The drop in trading gains was already expected although the magnitude is hard to predict, explaining banks’ below expected results. Banks’ core lending business, which is a more sustainable source or recurring profits, remained strong during the period,” the COL research said.

The research noted that several companies that missed estimates in the first quarter could stage a strong recovery during the latter part of the year. For example, the research said that port operator ICTSI could benefit from the first-time contribution of two new ports in the second half; construction firm Megawide could book more construction contracts during the latter part of the year due to the cyclical nature of the construction business; Meralco could benefit from stronger power demand as a result of the higher temperature during the summer months, and NickelAsia should benefit from rising nickel prices.

“The only group that showed deteriorating fundamentals was the retail segment of the consumer sector,” the research said, noting that the first three months was the third quarter in a row that SMIC had reported below-expected results due to SM Retail. It was also the second quarter in a row that Puregold had reported below-expected results while Robinsons Retail also reported below-expected results, COL said.

“This could mean that competition is intensifying, resulting in weaker revenues per store and lower margins. Note that all three players are embarking on an aggressive expansion program,” the research said.

Meanwhile, the stocks that met COL’s expectations in the first quarter were Metrobank, ABS-CBN, First Philippine Holdings, JG Summit, Metro Pacific Investments, Universal Robina Corp., Bloomberry, Travellers, Aboitiz Power, Energy Development Corp., First Gen, Filinvest Land and Ayala Land Inc.

Those that delivered earnings that exceeded expectations in the first quarter were Banco de Oro, Security Bank, Manila Water, D&L Industries, Emperador, Jollibee, Belle Corp., Melco Crown, Global Telecoms, PLDT, Megaworld, RLC, Vista Land and SM Prime.

By counter, COL noted that property companies in general delivered strong results in the first quarter, driven by the strength of both the residential and leasing businesses.

Earnings of power firms, however, were mixed. For the telecom industry, COL said earnings growth was primarily driven by the 5-percent increase in service revenues while steady revenue growth was attributed to the continued strong performance of the broadband segment.

For gaming, the combined net profits of the gaming companies covered by COL grew by 566.2 percent, driven by Bloomberry and Travellers whose integrated gaming operations were already operational. COL noted that their combined revenues had grown 30 percent despite concerns that the market was not big enough to accommodate the two players.