China-listed stocks show better 1H results; 2H prospects weak

On average, China''s listed companies increased their earnings in the first half, but prospects look bleak for year-end says CLSA.

For the first half of 2001, earnings per share (EPS) for domestically listed Chinese companies averaged Rmb0.1025, up 3.2% on-year, while average return on equity (ROE) was 4.1% compared to 5.0% a year ago, according to research from investment bank CLSA. 

"The improved quality of companies' earnings is likely to be overshadowed in the second half by losses on listed companies' stock market investments," comments Erwin Sanft, CLSA's head of China research, referring to the practice many companies have of investing profits in the stock market. Many experts believe that stock markets will weaken in the second half of this year in the wake of a government clampdown on illegal investing and its sell-off of state-owned shares.

Some 101 companies out of a total of 1,151 domestically listed company, 8.8% of the total, reported a loss in the first half of this year. Just 53 companies paid out an interim dividend. 

Machinery, equipment and instrumentation had the highest number of loss-making companies according to CLSA. By contrast, social service companies enjoyed the best net profit growth and ROE improvement.

The oil, utilities, finance and IT sectors were the most profitable sectors, while property and wholesale/retail were the least profitable industries, the report said. 

An increasing number of companies had their interim results audited, 31.9% for the first half of this year, compared to 30.9% in the first half of last year. 

However, many experts say that listed companies use 'window-dressing' techniques to inflate their profit figures.

The results are unlikely to reverse the recent slump in the Shenzhen and Shanghai bourses.

The Shenzhen and Shanghai bourses have slumped 14% and 11% respectively year-to-date after the authorities clamped down on illegal stock investing from the banking sector in the form of credit loans to SOE's and listed companies, which then play the markets. Scandals have also rocked the markets, with companies issuing inflated profit reports, hurting sentiment, as has the government's share sell-off to raise funds for its fledgling social welfare scheme. The government holds an average 60% stake in listed companies.

Over 100 companies have applied to list to issue new shares, but the government is matching the amount they issue with a 10% sell-down of its own.

Many investors complain that the state is selling its shares at an artificially high price, and that liquidity will suffer as proceeds will be used to pay social-security needs or invested in government bonds.