Business / Markets

After a year in the red, companies to be back in black

By Wu Yiyao in Shanghai (China Daily) Updated: 2016-04-11 09:23

More than 60 percent or 587 of the 2,852 listed companies with A shares have released positive forecasts for their first-quarter-January-March-results.

Of them, 366 expect positive profit growth. Emerging industries are expected to outperform other sectors.

Companies engaged in telecommunications, electrical ware, mechanical goods, software, information services, special equipment, biochemicals and pharmaceuticals are among the fastest-growing, according to data from China Securities News.

Analysts said A-share companies' forecasts show recovering fundamentals, particularly rising industrial profits and wider profit margins.

Gao Ting, head of China strategy at UBS Securities, said non-financial A-share companies' net profit growth is highly correlated with industrial profit growth.

"If this correlation continues, combined with the rise in the PMI (Purchasing Managers Index) in March, non-financial A-share companies' earnings growth could improve in the first quarter of 2016," said Gao.

He further said January-February industrial profits rose 4.8 percent year-on-year, an improvement which reversed the losses posted in 2015.

Revenue from the main business of companies rose 1 percent year-on-year on higher profit margins, which also boosted their profits.

According to the National Bureau of Statistics, manufacturing PMI in March was 50.2, the first time it surpassed 50 since last July.

The sub-index measuring production stood at 52.3 in March, up 2.1 points from February, while that for new orders settled at 51.4, up 2.8 points, which will likely ease market concerns about deflation in upstream industries.

Researchers said they expect some A-share companies in traditional sectors, which posted losses in the past quarters, to be back in the black in the first quarter amid a recovering economic climate, particularly in the agricultural sector and the steel industry.

A research report of Changjiang Securities said some companies that are focused on poultry, livestock and processing, may benefit from rising food prices and falling cost of animal feed.

So, a wider profit margin will help them to partially offset losses of the past quarters.

The research note said the steelmakers' situation has been improving as a number of A-share companies forecast positive profits for the first quarter. Given the recovery in steel prices since February, gross profits in the sector are expected to improve significantly.

A research note of Haitong Securities Co Ltd said reduction in inventories of real estate developers in the first- and second-tier cities, and growing sales revenues, have helped boost profits in the sector.

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