Asian corporate profits fall for the first time in 7 quarters


June 14 (Reuters) – Asian corporate profits in March fell for the first time in seven quarters, due to slowing demand from lockdowns in China and shrinking margins as input costs rise.

According to a Reuters analysis of Asia’s top 1,500 large- and mid-cap companies by market capitalization and those covered by at least three analysts, the companies’ cumulative profits fell 3.2% in the March quarter in 2019. year-on-year.

Quarterly earnings of Asian companies

This is the first drop since June 2020.

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The data also showed their average net margins were 5.86%, the lowest in seven quarters.

Net margins of Asian companies

“Rising commodity prices are impacting profit margins as companies struggle to pass on rising input costs to their consumers,” said Herald van der Linde, head of equity strategy, Asia- Pacific, at HSBC.

The drop in earnings came as investors dumped regional equities amid fears companies would not be able to weather rising interest rates and soaring levels of inflation.

China’s trade activity and consumption slowed in the first quarter due to a resurgence in COVID-19 cases, which also affected regional companies exporting to the Asian country.

The data showed that Malaysian and South Korean companies, which derive much of their revenue from China, saw an 18.3% and 18.9% drop in profits in the first quarter, respectively.

Breakdown by country of earnings growth in Q1 2022

Toyota Motor (7203.T) reported a 33% drop in operating profit in the March quarter and warned that unprecedented rises in raw material costs could slash its annual profit by a fifth. amid supply chain stress that rocked the automaker. industry.

Lenovo, the world’s largest PC maker, reported its weakest quarterly revenue growth in seven quarters as demand for its personal computers declined after two years of demand due to the pandemic.

Some analysts expect rising interest rates to further affect corporate earnings and margins in the coming months.

South Korea’s central bank has already raised interest rates three times this year, while India’s central bank has raised them twice, in a bid to curb inflation and prevent foreign capital outflows .

“We expect central banks to tighten as inflationary pressures continue. Rising borrowing costs will certainly hit leveraged firms,” ​​said Zhikai Chen, head of Asian equities at BNP Paribas Asset. Management.

However, he added that the impact on funding should be manageable as Asian companies, especially those hit hard by the Asian financial crisis, have reasonable debt ratios.

According to the data, Asian corporate profits are expected to rise just 6.7% in 2022, the lowest in three years, as analysts still expect the slowdown in China to persist for some time.

“In the near term, we believe that slowing economic growth, reduced operating leverage and the lagged effect of higher input prices (particularly oil) are likely to have a greater impact on margins in 2022. “said Amman Patel, investment strategist at Credit Suisse.

Breakdown of net margins by sector
Breakdown by sector of profit growth in Q1 2022
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Reporting by Gaurav Dogra, Patturaja Murugaboopathy in Bengaluru; Additional reporting by Rae Wee in Singapore; Editing by Vidya Ranganathan and Sherry Jacob-Phillips

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