It’s that time of the year again.
Companies are gearing up to release their full-year 2020 earnings and investors will be closely scrutinising the numbers and business commentary.
What makes this earnings season interesting is the effect of the pandemic on various businesses.
Management’s earnings commentary can provide clues on how each industry is faring, and also gives insights as to how businesses are coping with the challenges.
By reviewing the financials and understanding how each company is faring, investors can get a better sense of which companies remain resilient, and which are still struggling.
Here are three aspects that investors should focus on when they pore through the financial statement and commentaries.
Tackling COVID-19
For industries that were badly impacted by the pandemic, the latest earnings report can offer a glimpse as to how the companies within them are coping.
A good example is the aviation industry.
Lockdowns and border closures had decimated air travel for most of 2020, adversely affecting companies such as Singapore Airlines Limited (SGX: C6L) and SATS Ltd (SGX: S58).
Singapore’s flagship carrier reported continued losses as its fleet remained largely grounded.
The presence of green lanes and travel bubbles have helped the airline somewhat, though cash burn remains high.
CEO Goh Choon Phong said in November that the airline was in advanced discussions for more sale-and-leaseback of its aircraft to free up valuable cash.
There are also plans to tap on the debt markets further for liquidity.
For SATS, the crisis was so deep that the group reported its first quarterly loss since its listing in 2000.
With international air travel still 88% down year on year in November, the group has been expanding its food solutions segment to cater to new customer segments.
Then there’s also testing and inspection specialist VICOM Limited (SGX: WJP).
The business was stunted by the crisis to the point that the group decided to suspended its interim dividend to conserve cash.
With conditions improving after the implementation of Phases II and III of Singapore’s reopening, perhaps VICOM may provide a more sanguine outlook when it releases its full-year earnings.
Growth plans
Despite the severity of the downturn, several companies were fortunate enough to post growth.
These businesses were either not much affected by the pandemic or had business models that enabled them to continue growing amid the recession.
The latest earnings and commentary could shed light on how these companies plan to grow even further.
One example is iFAST Corporation Limited (SGX: AIY).
The financial technology company, which runs a platform for the buying and selling of unit trusts, bonds and equities, recently announced that its assets under administration (AUA) had hit a new record high of S$14.45 billion as of 31 December 2020.
The group plans to launch stock-dealing services in Malaysia and private fund management services to onshore and offshore investors in China in 2021.
Another business that has witnessed healthy growth is Micro-Mechanics (Holdings) Ltd (SGX: 5DD).
The designer and manufacturer of precision tools and parts used in the semiconductor industry reported record revenue of S$18.1 million for its fiscal 2021 first quarter, up 18.3% year on year.
Net profit jumped by 42.3% year on year to S$4.7 million.
The group is focused on maintaining its gross profit margin and is also spending on automation and the digitalisation of workflows to cut costs.
Restoration of dividends
A third aspect to watch out for are companies that were moderately impacted by the pandemic and had to reduce their dividends last year.
The earnings commentary may provide some indication of when dividends can be restored.
Food and beverage businesses were badly hit by movement control restrictions and social distancing requirements.
Companies such as Jumbo Group Ltd (SGX: 42R) and Japan Foods Holdings Ltd (SGX: 5OI) reported weaker earnings.
Jumbo did not declare any final dividend, compared to a final dividend of S$0.007 last year.
Japan Foods reduced its interim dividend from S$0.01 to S$0.0075 after reporting an 80.2% year on year plunge in net profit.
The three local banks were also advised by the Monetary Authority of Singapore to moderate their dividend payments last year.
The banks are supposed to cap their fiscal 2020 full-year dividends to a maximum of 60% of what was declared in the fiscal year 2019.
Should economic conditions improve substantially, investors will be looking for an indication as to when the banks can restore their dividends.
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Disclaimer: Royston Yang owns shares in SATS Ltd, iFAST Corporation Limited and VICOM Limited.
