Translated by Andrew Vanburen from a Chinese-language piece in Economic Information Journal
FOR THOSE OF US hoping for some sustained good news for our investments... better luck next half.
Firms listed in China are required to provide earnings statements at least twice a year, but the decision on whether or not to provide guidance is up to them.
Therefore, when we find out now that of the 845 PRC-listed firms that have been bold enough to issue forecasts for their January-June performance, nearly half are guiding for first half declines, that says a lot about the state of the capital markets in China – and the region – these days.
Furthermore, 67 are warning of first time net losses for the six month period.
According to market statistics, of the 845 PRC-listed firms already issuing first half earnings guidance, some 327 of these brave souls expect to see bottom line declines in the first half on a year-on-year basis.
Another 57 have not issued forecasts on where they see their revenue headed, but at the same time say their net profits will either swing to losses (42 firms) or see lower bottom lines for the reporting season (15 firms).
In total, 384 firms are expecting deteriorated earnings or outright losses during the current half, which constitutes over 45% of those already providing first half guidance.
One of those expecting to turn heads for all the wrong reasons this half is Hangzhou-based property developer Calxon Group Co Ltd (SZA: 000918).
The heavily leveraged property firm said it expects to lose 350 mln yuan this half, down a shocking 4,900% year-on-year.
The real estate play explained that one of the major reasons for its disastrous earnings performance is that the housing environment is very difficult at present, buying sentiment is very lackluster and this has had a negative impact on revenue.
Another property developer taking it on the chin this half will likely be Shenzhen World Union (SZA: 002285) along with several peer property plays, many of whom are guiding for either significantly lower bottom lines or outright losses in the first half.
In fact, of the 23 developers already issuing January-June earnings guidance, 16 are saying their operations will be either in the red or very close to it, meaning only around 30% of listed property counters will likely break even or grow this half.
Effective this Friday, the reserve requirement ratio – the amount of cash banks are required to have on hand – will be lowered by 0.5 percentage points.
While easier credit is especially good news for cash-hungry industries like real estate, the latest loosening move by the People’s Bank of China will come as little solace to struggling property counters like Calxon and Shenzhen World Union.
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