(Sept 4): Our Singapore Market Portfolio rose 0.67% over the week from Aug 22 to 29, against a 0.44% fall in the Straits Times Index. Now that all the companies in our portfolio have reported their earnings for the quarter to June, we have decided to review their performance as a whole.

Ten out of the 16 companies in the portfolio have announced y-o-y improvements in their quarterly earnings numbers — ranging from 5% for logistics services provider Cogent Holdings to 97% for property developer CapitaLand. Rubber parts maker Memtech International and coal miner Golden Energy and Resources (GEAR) both reported turnarounds from losses to profitability. These better numbers are broadly indicative of an improving global economic environment.

Those that reported contractions in earnings ranged from a 3% decline for bourse operator Singapore Exchange to an 89% fall for gold miner CNMC Goldmine Holdings.

Top performers Memtech’s turnaround was within the expectations of CIMB Research. The company reported revenue growth of 20.1% y-o-y in 2QFY2017 to US$37.8 million ($51.1 million). Earnings came in at US$4.9 million, versus a loss of US$1.4 million a year ago. In 2QFY2016, Memtech’s numbers had been negatively impacted by a project delay. Absent these delays, the company’s gross margin for 2QFY2017 rebounded from 8.6% to 17.3%. Memtech also booked a one-off gain from the sale of land and a factory in China. Even excluding this gain, core earnings would still have been a strong US$1.8 million.

CIMB is expecting a seasonally stronger second half for the company. It is forecasting earnings of US$9.5 million for the full year and core earnings growth of 63.7%.

GEAR’s turnaround, too, was expected, given that the company has been restructured and that coal prices have risen. Its revenue increased 54.9% y-o-y to US$139.6 million. It reported earnings of US$19.1 million, turning around from a loss of US$459,000 in 2QFY2016.

RHB Research Institute Singapore is expecting a better second half. In 1HFY2017, GEAR produced six million tonnes of coal. According to RHB, GEAR’s management claims it is on track to reach its production target of 14 million tonnes this year. RHB is therefore forecasting revenue of US$573 million this year and earnings of US$81 million.

Over at CapitaLand, the sharp jump in earnings to $579.3 million was driven not by revenue — which declined 12.3% to $992.4 million — but by one-time items. The company booked revaluation gains from investment properties here and in China, and portfolio gains from the sale of assets in China and Japan. Excluding these exceptional gains, operating earnings increased 20.5% to $206.8 million.

One stock that surprised on the upside was property developer UOL Group, whose revenue increased 10% to $399.1 million. Earnings jumped 59% to $109.4 million or 13.6 cents a share, beating consensus expectations of 12 cents.

Stronger sales momentum, higher average selling prices (ASPs) for its local development projects and positive rental reversions were among the reasons for the strong performance, according to Phillip Capital analyst Peter Ng. “This was better than our expectations, as we were expecting pressures in rental reversions amid the oversupply of office space and lacklustre retail sales in 1H2017, and pressures to only begin easing in 2H2017,” says Ng in an Aug 7 report.

He is optimistic about UOL’s outlook, as he expects ASPs to keep increasing on the back of “rapid absorption”. UOL currently has three property development projects here, and they are at least 50% sold. “We expect ASPs of existing development projects to gain an average of 5%, adding 4.5 cents to our revalued net asset value,” he says.

Disappointments on micro events Our picks that disappointed have been impacted by specific, micro difficulties rather than broad macro trends. CNMC, for instance, has seen its sales and earnings fall drastically as a result of lower ore grades, which make it more difficult and expensive to extract gold.

The company is constructing a new extraction plant at its flagship Sokor gold field in Kelantan, which is expected to boost production volumes. CNMC’s current plant uses the heap leaching method of extraction, whereas the new plant is a carbon-in-leach plant. CIL plants have recovery rates of as high as 95%, the company says, compared with an average of 65% for the heap leaching facility. Trial production at the new plant is planned for 4Q2017.

Sarine Technologies, which produces equipment used for shaping, polishing and grading diamonds, says its sales have been negatively affected by the illicit activities of an Indian competitor. Sales of inclusion mapping systems for smaller stones were lower because of “patent and copyright infringement activities” by this competitor, Sarine says.

The illicit competition is likely to prevail into 3Q, the company adds. Nevertheless, it remains confident of maintaining its market leadership. Sarine will also begin to commercialise some new technologies in 3Q. A formal launch of its machines that grade the clarity and colour of polished diamonds is scheduled for mid-September.

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