SINGAPORE: More Singapore companies are expected to report flattening profits in the next quarter and beyond as they continue to grapple with domestic cost pressures.
But despite the cloudy outlook, analysts say there are some bright spots.
Singapore corporate earnings fell short of expectations in the first quarter of this year.
CIMB Research said on average, two companies disappointed for every company that beat the mark.
According to analysts, most of the companies underperformed because of an inability to control domestic costs.
So looking ahead, they prefer externally-oriented sectors like commodities and offshore and marine, over domestically-focused sectors such as transport and property.
Daryl Liew, head of Portfolio Management at Reyl Singapore, said: "I think as a result of all the tightening measures by the government, a lot of the property developers now are pricing their units to sell, thus slashing prices.
“So that's going to put a lid on earnings over the next couple of quarters. But at least, they're going to be clearing some of the stock."
Analysts also suggest that the lack of strong earnings catalysts has dampened trading on the Singapore Exchange (SGX).
Based on data from SGX, securities trading over the first three months of 2014 is down by 35 per cent from a year ago to S$67.4 billion.
For companies that make up the STI, CIMB expects full-year core net profit growth of 7 per cent.
Some analysts say they see better value outside of the STI constituent stocks.
Terence Wong, head of Research at DMG & Partners Research, said: "We like small-cap offshore and marine companies like Nam Cheong, Pacific Radiance – these should continue to do well.
“I like the construction story. They do have a very strong macro outlook, save for certain margin issues for some of the smaller construction guys. So I'm actually putting my confidence and money into companies like Lian Beng, which are the larger contractors."
The first quarter earnings season was disappointing, but for the next quarter, analysts are more preoccupied with the World Cup effect, as investors temporarily lose interest in the stock market.
- CNA/nd