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Rosy figures but forex losses, write-downs cloud horizon

Overall profits rise a third to $7.2b despite hiccups at some companies

THE profit numbers certainly look good but confidence has been shaken with investors left with more questions than answers.

 As of last night, the profits of 258 Singapore-listed companies with third quarters ending on Sept 30 totalled $7.21 billion. This is 32 per cent up on the $5.46 billion made in the same period last year.

But huge write-downs by foreign banks – and more modest ones locally – linked to the United States subprime mortgage sector and foreign exchange losses by local rig builders have put nerves on edge.

 Witness the schizophrenic stock market alternating between record highs and gloomy dips.

Underlining much of the jitters is the fear that more firms, particularly in the offshore and marine sectors, could face similar forex losses that have already claimed SembCorp Marine (SembMarine) and Labroy Marine.

 

SembMarine rocked the market, after it revealed that losses from unauthorised forex transactions by its group finance director had amounted to US$303 million (S$438.2 million).

 Labroy also reported an unrealised loss of $206.5 million, after it sold euros for US dollars earlier this year to hedge against exposure to the European currency. Investors are now asking if there will be more forex losses among offshore and marine firms. Market watchers are not betting against it, given the greenback’s continued weakness, which could force

more companies to disclose their positions.

 Analysts estimate that about 60 per cent of Singapore‘s corporate order books are denominated in US dollars. ‘There are those who may be suffering more from exchange rate losses after translation, because the Singdollar strengthened. They receive in US dollars and they report in Singdollars,’ said CIMB-GK research head Song Seng Wun.

The chief investment officer of Fortis Private Banking Singapore, Mr Lim Kok Boon, said the losses at SembMarine, which caught the market by surprise, have served as a reality check.‘People are a little more cautious going into the final quarter of the year, especially when  forex movements in the second half of this year have been so volatile,’ he said.

 

Singapore banks – the traditional top earners – will also come under scrutiny in the next few months, with analysts not ruling out more write-downs on their portfolio of investments exposed to US sub-prime problems.

 DBS Group Holdings set aside $70 million last quarter, United Overseas Bank (UOB) made provisions of $55 million and OCBC Bank set aside $221 million to cover the fallout from risky debt.

‘There could be more provisions, but again it will be very similar to the third quarter at worst,’ said Daiwa Institute of Research analyst David Lum.

Mr Najeeb Jarhom, senior vice-president of research at AmFraser Securities, said DBS and UOB should not have to make ‘significantly more of such provisions’ as the sub-prime crisis could fade away towards the middle of next year.

 Unlike interim earnings, the full-year figures will be subject to careful scrutiny by external auditors. ‘I suppose they will perhaps take a more conservative interpretation of valuations,’ Mr Song said. While banks might be most vulnerable to damage from the US mortgage mess, analysts say property developers also face much uncertainty, following the end of the deferred payment scheme for buying uncompleted private properties.

‘We’ve got the latest cooldown measure by the Government and to me, it’s not certain that prices would continue to steam ahead like they did for 21/2 quarters,’ Mr Lum said.

So do not expect the stock market to be smooth sailing, say observers.

 

The head of OCBC Investment Research, Ms Carmen Lee, said: ‘We expect market volatility in the short term to remain.’

LESS OPTIMISM‘People are a little more cautious going into the final quarter, especially when forex movements in the second half of this year have been so volatile.’MR LIM of Fortis, on the fourth-quarter outlook Source: The Straits Times 16 Nov 07

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