Earnings
By Yiannis G. Mostrous
FALLS CHURCH, Va.–Today I’m taking a quick look at the results reported so far by companies in the SRI Portfolio. Those recommendations not covered below have either been discussed in previous issues or have yet to report third quarter results.
Singapore Telecommunications: most-recent numbers beat expectations as Southeast Asia’s largest telephone company saw a 19 percent rise in net income to USD612 million.
A record number of new subscribers drove third quarter results as SingTel added 8.4 million mobile-phone users in the period. The company now has a total of 100.8 million subscribers in seven countries, nearly half of them former customers of Bharti Airtel. SingTel has a stake in Bharti Airtel, India’s biggest wireless telephone company.
SingTel has interests in quite a few telecom operators in developing countries–as well as Australia–and these affiliates are expected to continue to boost overall performance. SingTel shares should benefit as investors assign the appropriate weight to these operations. The company’s new CEO, Lee Hsien Yang, emphasized this opportunity in a recent statement when she said, Our associates, especially Bharti and Telkomsel, continue to perform strongly. We see strong potential for further growth in our associates.”
Taiwanese play Chunghwa Telecom reported marginally positive results in line with expectations, including a 2 percent growth rate. Income was weaker than expected, though, due to a higher tax rate.
Chunghwa’s place in the SRI Portfolio is based on management’s strong commitment to returning cash to shareholders. The company’s leadership recently noted that it’s in discussions with the Taiwan government to ease regulations on special dividends. It therefore appears as if the company is planning to offer more special dividends in the near future.
Finally, Chunghwa’s restructuring program is on track; an additional 1,900 employees have accepted a recent early retirement offer that could save the company NT3.2 billion in operating expenses per year starting in 2007. Management indicated that it would continue its three-year retirement program to further streamline the organization.
United Overseas Bank reported flat earnings, as expected. The bank did register one of its best loan growth numbers in years at 9 percent year-over-year; this is an important development.
Though Singaporean banks have been slow growers for sometime, improvement is visible as the economy enjoys strong growth amid a reflationary environment (see SRI, 4 October 2006, Portfolio Shuffle and SRI, 11 October 2006, Testing-Testing). As a result, loan growth could easily reach double digits next year as consumer loan growth picks up. Banking stocks should eventually trade at a premium to the market, especially as return on equity (ROE) improves through growth.
Dr. Reddy’s reported increased profits of 214 percent year-over-year and 100 percent quarter-over-quarter due to higher one-time gains (i.e., authorized generics) and a much better performance in its base business. Sales were up 42 percent.
The company’s core operations have done well based on depth in its product pipeline, strong customer relationships, geographic diversification and expansion in manufacturing assets. Dr. Reddy’s German operations have been performing quite well (see SRI, 25 October 2006, A Genuine Growth Story).
Mitshubishi Heavy Industries reported an 84 percent increase in operating profits and a 47 percent increase in net profits on a year-over-year basis. There were no surprises.
Profitability improvements came mostly from increased profits in the power systems (102 percent) and the mass- and medium-lot machinery divisions (91 percent). The company continues to gain market share across business lines. Strategically, extra effort will be placed behind the medium-lot machinery segment.
Sanofi-Aventis reported weak results as many of its key products missed estimates. The company was faced with increasing reimbursement pressure in France and Germany, while US growth for some of its products (including Eloxatine) slowed because of high market penetration. As a result, sales came in below expectations at EUR6.9 billion.
Nevertheless, earnings per share beat expectations by 8 percent, reflecting the success of a cost-reduction program that helped reduce sales and administrative costs by 17 percent. Expect this trend to continue as Sanofi plans to match revenue pressure with cost reductions.
But you can expect more volatility as the US Food and Drug Administration nears a decision on Sanofi’s Acomplia obesity drug and other issues involving generic drug makers are resolved.
Shinhan Financial’s latest results were much better than observers expected. The company reported higher-than-expected bottom-line earnings (helped by non-operating income), flat net interest margins and strong loan expansion.
Loans grew 7.8 percent, the highest rate in the industry. Though net income margins remained flat, the company increased net interest income by 4.6 percent. Shinhan saw all its quality measures improving; non-performing loans (NPL) declined to 1.1 percent from 1.3 percent. The NPL coverage ratio increased to 142.3 percent from 139.6 percent during the same period.
Shinhan will continue to offer strong asset quality that, together with a reliable management team, will eventually reward investors’ confidence.
ABN AMRO didn’t have a positive quarter, even though operating profits grew by 11 percent. The main problem was an increase in recent acquisition Antonveneta’s provisions.
The company hasn’t been able to perform as well as the sector, as management seems to have had difficulty turning things around. On the other hand, it remains quite attractive on a valuation basis and ABN has potential as an acquisition target.
Royal Dutch Shell had an excellent quarter; earnings grew by 25 percent, easily surpassing expectations. The improved performance came from the refining and marketing and gas and power divisions. The liquefied natural gas business was particularly strong due to rising volumes and trading profitability.
Management has become quite upbeat and more confident in its ability to execute on the development of the company’s long-term portfolio.
The reasons Shell was added to the Portfolio haven’t changed; the company still boasts high-quality assets at a fair price. The fact that during the past nine months management has shown signs of improving operations and profitability is a bonus and, if sustained, points to a welcome rise in valuations.
ICICI Bank’s latest results were solid; earnings were up 30 percent from the same period in 2005, asset growth was strong at 49 percent, and loan growth, driven by a 57 percent rise in retail loans, was up 45 percent.
Costs grew by only 35 percent, while the core cost income ratio (excluding treasury income and investment provisions from income) improved to 59 percent from 64 percent last quarter.
The investment case for ICICI Bank is still valid. The bank is experiencing strong volume growth and has adequate capital to support asset growth. ICICI has the fastest loan and earnings growth rates in the region, good asset quality and reasonable valuations of 1.8 times book value and 11 times forward earnings.
ICICI’s recent announcement that it would expand aggressively in rural India is another positive indicator for long-term growth. This segment of the Indian economy will fuel the next phase of growth in the country (see SRI, 25 October 2006, A Genuine Growth Story).
FALLS CHURCH, Va.–Today I’m taking a quick look at the results reported so far by companies in the SRI Portfolio. Those recommendations not covered below have either been discussed in previous issues or have yet to report third quarter results.
Singapore Telecommunications: most-recent numbers beat expectations as Southeast Asia’s largest telephone company saw a 19 percent rise in net income to USD612 million.
A record number of new subscribers drove third quarter results as SingTel added 8.4 million mobile-phone users in the period. The company now has a total of 100.8 million subscribers in seven countries, nearly half of them former customers of Bharti Airtel. SingTel has a stake in Bharti Airtel, India’s biggest wireless telephone company.
SingTel has interests in quite a few telecom operators in developing countries–as well as Australia–and these affiliates are expected to continue to boost overall performance. SingTel shares should benefit as investors assign the appropriate weight to these operations. The company’s new CEO, Lee Hsien Yang, emphasized this opportunity in a recent statement when she said, Our associates, especially Bharti and Telkomsel, continue to perform strongly. We see strong potential for further growth in our associates.”
Taiwanese play Chunghwa Telecom reported marginally positive results in line with expectations, including a 2 percent growth rate. Income was weaker than expected, though, due to a higher tax rate.
Chunghwa’s place in the SRI Portfolio is based on management’s strong commitment to returning cash to shareholders. The company’s leadership recently noted that it’s in discussions with the Taiwan government to ease regulations on special dividends. It therefore appears as if the company is planning to offer more special dividends in the near future.
Finally, Chunghwa’s restructuring program is on track; an additional 1,900 employees have accepted a recent early retirement offer that could save the company NT3.2 billion in operating expenses per year starting in 2007. Management indicated that it would continue its three-year retirement program to further streamline the organization.
United Overseas Bank reported flat earnings, as expected. The bank did register one of its best loan growth numbers in years at 9 percent year-over-year; this is an important development.
Though Singaporean banks have been slow growers for sometime, improvement is visible as the economy enjoys strong growth amid a reflationary environment (see SRI, 4 October 2006, Portfolio Shuffle and SRI, 11 October 2006, Testing-Testing). As a result, loan growth could easily reach double digits next year as consumer loan growth picks up. Banking stocks should eventually trade at a premium to the market, especially as return on equity (ROE) improves through growth.
Dr. Reddy’s reported increased profits of 214 percent year-over-year and 100 percent quarter-over-quarter due to higher one-time gains (i.e., authorized generics) and a much better performance in its base business. Sales were up 42 percent.
The company’s core operations have done well based on depth in its product pipeline, strong customer relationships, geographic diversification and expansion in manufacturing assets. Dr. Reddy’s German operations have been performing quite well (see SRI, 25 October 2006, A Genuine Growth Story).
Mitshubishi Heavy Industries reported an 84 percent increase in operating profits and a 47 percent increase in net profits on a year-over-year basis. There were no surprises.
Profitability improvements came mostly from increased profits in the power systems (102 percent) and the mass- and medium-lot machinery divisions (91 percent). The company continues to gain market share across business lines. Strategically, extra effort will be placed behind the medium-lot machinery segment.
Sanofi-Aventis reported weak results as many of its key products missed estimates. The company was faced with increasing reimbursement pressure in France and Germany, while US growth for some of its products (including Eloxatine) slowed because of high market penetration. As a result, sales came in below expectations at EUR6.9 billion.
Nevertheless, earnings per share beat expectations by 8 percent, reflecting the success of a cost-reduction program that helped reduce sales and administrative costs by 17 percent. Expect this trend to continue as Sanofi plans to match revenue pressure with cost reductions.
But you can expect more volatility as the US Food and Drug Administration nears a decision on Sanofi’s Acomplia obesity drug and other issues involving generic drug makers are resolved.
Shinhan Financial’s latest results were much better than observers expected. The company reported higher-than-expected bottom-line earnings (helped by non-operating income), flat net interest margins and strong loan expansion.
Loans grew 7.8 percent, the highest rate in the industry. Though net income margins remained flat, the company increased net interest income by 4.6 percent. Shinhan saw all its quality measures improving; non-performing loans (NPL) declined to 1.1 percent from 1.3 percent. The NPL coverage ratio increased to 142.3 percent from 139.6 percent during the same period.
Shinhan will continue to offer strong asset quality that, together with a reliable management team, will eventually reward investors’ confidence.
ABN AMRO didn’t have a positive quarter, even though operating profits grew by 11 percent. The main problem was an increase in recent acquisition Antonveneta’s provisions.
The company hasn’t been able to perform as well as the sector, as management seems to have had difficulty turning things around. On the other hand, it remains quite attractive on a valuation basis and ABN has potential as an acquisition target.
Royal Dutch Shell had an excellent quarter; earnings grew by 25 percent, easily surpassing expectations. The improved performance came from the refining and marketing and gas and power divisions. The liquefied natural gas business was particularly strong due to rising volumes and trading profitability.
Management has become quite upbeat and more confident in its ability to execute on the development of the company’s long-term portfolio.
The reasons Shell was added to the Portfolio haven’t changed; the company still boasts high-quality assets at a fair price. The fact that during the past nine months management has shown signs of improving operations and profitability is a bonus and, if sustained, points to a welcome rise in valuations.
ICICI Bank’s latest results were solid; earnings were up 30 percent from the same period in 2005, asset growth was strong at 49 percent, and loan growth, driven by a 57 percent rise in retail loans, was up 45 percent.
Costs grew by only 35 percent, while the core cost income ratio (excluding treasury income and investment provisions from income) improved to 59 percent from 64 percent last quarter.
The investment case for ICICI Bank is still valid. The bank is experiencing strong volume growth and has adequate capital to support asset growth. ICICI has the fastest loan and earnings growth rates in the region, good asset quality and reasonable valuations of 1.8 times book value and 11 times forward earnings.
ICICI’s recent announcement that it would expand aggressively in rural India is another positive indicator for long-term growth. This segment of the Indian economy will fuel the next phase of growth in the country (see SRI, 25 October 2006, A Genuine Growth Story).