Many companies have warned their shareholders to expect lower revenues and pressure on earnings this year, despite reporting stronger financial results and attractive dividends in 2022. — Bloomberg
SINGAPORE: Locally listed companies operating in industries from real estate to commodities say business conditions will get tougher this year as demand slows and costs continue to rise.
While this could put pressure on earnings, spurring some companies to be less generous with dividends and stall their plans for growth, some analysts said pockets of opportunity can still be found in the local stock market.
During the recently concluded earnings season, many companies warned their shareholders to expect lower revenues and pressure on earnings this year, despite reporting stronger financial results and attractive dividends in 2022.
Among the additional costs companies operating in Singapore must contend with this year are higher wages, now that the salary ceiling for employee Central Provident Fund contributions has gone up.
By 2026, the ceiling will have risen by US$2,000 (RM8,956) from the current US$6,000 (RM26,868) to hit US$8,000 (RM35,824), starting with a hike of US$300 (RM1,343) from this September.
Meanwhile, “raw material prices and other costs have appreciated sharply in the past one year and the trend looks unlikely to reverse anytime soon”, Carmen Lee, head of OCBC Investment Research, said.
She added: “Overall, with high interest rates and operating costs, this could impact corporate earnings, especially for companies which are highly geared or over-staffed.”
Rising interest rates will have a greater impact on firms that need to borrow heavily from the banks to finance new projects.
Property players such as Ho Bee Land and UOL, which saw a jump in financing costs in 2022, have already warned that these will remain elevated in 2023.
Other firms that could see high financing expenses include agribusiness Olam Group as well as Sembcorp Marine and Yangzijiang Shipbuilding, which require capital to pay for construction materials, machinery and other costs to build rigs and ships.
These firms also reported higher financing charges in 2022.
Lee said while most Singapore companies have manageable debt levels, higher interest rates are challenging for those that are heavily indebted to the banks, particularly small to mid-tier growth firms, as this could impact their ability to continue expanding.
Meanwhile, investors could see a drop in net interest income at DBS Bank, OCBC Bank and UOB this year after all three benefited strongly from rising interest rates in 2022.
The US Federal Reserve could slow the pace of its rate hikes, while higher deposit funding costs could compress net interest margins in the quarters ahead, said Lee Wen Ching, chief investment office equity strategist at UBS Global Wealth Management.
The other risks for the banks include more borrower defaults as the cost of borrowing rises amid slowing demand.
Against this outlook, “investors should not expect a repeat in special dividends as these are non-recurring in nature”, UBS’ Lee said, noting that several companies raised their dividends in tandem with stronger profits, or paid one-off special dividends in 2022. — The Straits Times/ANN
