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May 3, 2017

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Chinese listed firms expect huge H1 profits

SIX in 10 Chinese-listed companies are poised to announce huge profits for the first half of this year, despite concerns that the world’s second-largest economy will lose steam.

Some 60.3 percent of 1,099 Chinese publicly traded companies as of yesterday had forecast profit growth or projected that losses would be reversed to profits for the January-June period.

The profitability of listed companies offers insight into a broader economic performance.

Breakdown figures revealed that only 13.6 percent of these companies are set to witness profit decreases or going into debt for the first six months, and the remainder have not made profit projections, Shanghai Securities News said yesterday.

As China continues to slash excess capacity and the prices of products increase, traditional sectors such as coal, metal and petrochemicals will see continued growth.

Companies in upstream sectors are among the biggest winners, with 54 listed petrochemical companies predicting more profits or reversing losses. Five companies, including Zhejiang Satellite Petrochemical, forecast net profit rises of above 10-fold year on year.

Nonferrous metal-related companies are set to turn healthy profits, with 21 businesses expected to see increased profits or turn losses into profits.

“The prices of petrochemicals and other products remained high at the start of the year due to the ongoing supply-side structural reform and more stringent environmental protection standards. Some smaller companies will be forced to halt business, while industry leaders will secure a stronger foothold in the market,” said Chen Hongliang, researcher with Guotai Junan Securities.

China is pressing ahead with supply-side structural reform, which features cutting overcapacity, deleveraging, lowering costs, reducing inventories and strengthening weak business links to generate sustainable long-term growth.

Many electrical equipment manufacturers staged strong expansion thanks to robust fixed-asset investment growth in China’s transport infrastructure, with the profits of 12 listed companies set to more than double in the first six months.

However, some analysts have cautioned that leading economic indicators may moderate in the coming weeks and listed companies will face pressure to achieve their profit targets.

UBS China said yesterday that April’s data is expected to show “slightly softer growth momentum” including weaker industrial output growth, slower property sales and cooler export growth.

The view is echoed by investment bank Nomura, which said: “Our composite leading index for China moderated in March, while our heat-map has cooled, pointing to a slower April after a strong March.” It forecast China’s GDP growth to slow to 6.8 percent in the second quarter from 6.9 percent in the first quarter.

Both official and private surveys showed that expansion in China’s manufacturing sector eased in April.

Commodity prices, including steel and coal, and midstream products, such as chemical fiber, all saw notable corrections in April, partially driven by financial deleveraging, China International Capital Corp said.

“The recent decline of raw material prices points to a shift in market supply and demand. Economic growth will witness slightly weaker momentum,” said Lian Ping, chief economist at the Bank of Communications.

Li Huiyong, economist at Shenwan Hongyuan Securities, said: “It is a crucial moment for some listed companies, especially those smaller ones facing rising debt against the backdrop of the US interest rate increase and rising capital costs at home.”


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