Chinese listed companies returned to profit growth in the third quarter, as Beijing’s economic stabilising measures fuelled an earnings recovery.
The profits of the 5,200-plus companies on the Shanghai and Shenzhen exchanges rose by an average 0.5 per cent year on year in the July to September period, according to Haitong Securities. That compares with a 9.4 per cent slump in the previous three-month period and 1.3 per cent growth in the first quarter. The third quarter earnings season ended on Tuesday.
“Earnings growth for A-share companies is expected to stabilise and pick up in the second half, with the economy undergoing a stable recovery,” said Xun Yugen, an analyst at Haitong Securities. The Shanghai-based brokerage expects full-year earnings growth of up to 5 per cent.
Big companies on the two exchanges’ main boards delivered better earnings than small-caps in the third quarter. Main-board companies reported a 0.2 per cent profit growth, outpacing a 3.8 per cent drop for start-ups on ChiNext and a 36 per cent slump for stocks on the tech-heavy Star Market, according to Caitong Securities.
Consumer companies recorded the most noticeable recovery in the sector, buoyed by accelerating retail sales growth during the summer holiday, the release of pent-up travel demand and robust electric-vehicle sales, the brokerage said. Profits at carmakers, retailers and food and drink producers grew by at least 16 per cent last quarter.
Profit declines narrowed at upstream material producers due to rising commodity prices and domestic demand. Petrochemical firms’ profits dropped 4 per cent, improving from a 14 per cent slump in the previous quarter, Caitong Securities said.
Meanwhile, property developers and animal husbandry stocks were the biggest drag on earnings. Profit declines at real estate companies widened to 34 per cent from 8 per cent as the sector has yet to stabilise despite a range of easing measures implemented by the government. Animal husbandry firms posted a loss on average due to falling pork prices, according to the brokerage.
The earnings recovery came after Beijing took a raft of stabilising measures to stem a slowdown in growth. The packages included cuts in borrowing costs and banks’ reserve requirement ratio, and relaxation of restrictions on home purchases in big cities.
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Earnings growth will continue to accelerate in the fourth quarter as the economy shows improved resilience, which expanded by a faster-than-expected 4.9 per cent in the third quarter, according to Guosen Securities.
“Based on our judgment, the first half was the trough of earnings,” said Chen Kaichang, an analyst at the brokerage in Shanghai. “Earnings growth will recover, while the return on equity will stabilise and tick higher.”