Article / 17 March 2017 at 14:16 GMT

Earnings Watch: Will Chinese companies deliver on recent momentum?

Head of Equity Strategy / Saxo Bank
Denmark
  • 53 of the 1,200 global companies tracked by Saxo report earnings next week
  • Expectations high for Tencent, China's 2nd most valuable publicly listed company
  • However, a very high valuation and low yield are dragging its overall score down
  • China Mobile scores above average in our quant model
  • The market has few arguments for sending oil producer Sinopec's stock higher
saxo strats

By Peter Garnry

Equity markets are already preparing for Q1 earnings scheduled to be released in three weeks time, but important earnings from Chinese companies and those not following the calendar year are due next week. 53 companies out of the 1,200 global companies that we are tracking will report earnings next week. In this week's Earnings Watch publication we look into Chinese earnings releases.

Can Tencent deliver on high expectations?

Tencent, the second most valuable publicly listed Chinese company after Alibaba, is set to report Q4 earnings on Wednesday. Analysts are expecting EPS 1.26 up 32% year-on-year and sales of CNY 44.1B up 45% y/y, so expectations remain very high for the most interesting technology company in China dominating social media. With a market value of $262 billion, Tencent is now the 12th most valuable publicly listed company in the world. Mobile games still remain Tencent's largest growth driver and will be a key focus for investors next week. The shares are up 46% the past year.

Tencent weekly share price
Tencent share price
Source: Saxo Bank 

As the table shows, our quant model scores Tencent around average on our global universe of stocks. Within its industry it has very high price momentum and high quality (return on capital), which are both important factors. But a very high valuation and low yield are dragging the overall score down.

Our quant model on Asia stocks
Quant model
Source: Saxo Bank Quantitative Strategies

The two other very important companies reporting earnings next week are China Mobile and Sinopec which are China's largest mobile carrier and oil company respectively.

Analysts expect China Mobile to deliver EPS 1.06 down 10% y/y and sales of CNY 170.3B 10% y/y on Thursday. The current environment is challenging for China Mobile with slowing roaming charges and tough competition. China Mobile scores above average in our quant model driven by its attractive valuation compared to the industry and its recent underperformance against the industry.

China Mobile weekly share price
China Mobile share price
Source: Saxo Bank 

Sinopec reports Q4 earnings on Friday with analysts expecting EPS 0.12 up 113% y/y as the oil price has rebounded from its lows in early 2016. Sinopec is a strong energy company within refining, chemical and marketing likely offsetting the current weakness in the exploration and petroleum (E&P) segment. E&P is currently not an attractive segment with oil prices stuck at $50/barrel due to the company's high upstream costs. With oil prices failing to increase, the market will have few arguments for sending the stock higher for the time being and investors will focus very much on the non-E&P segments.

Sinopec weekly share price
Sinopec share price
Source: Saxo Bank 

In addition to Chinese companies, important European and US companies are also reporting next week, including BMW (Tuesday), NIKE (Tuesday), FedEx (Tuesday), Accenture (Thursday) and Micron Technology (Thursday).

Below is a list of the most important companies reporting earnings next week.

Earning
Source: Bloomberg and Saxo Bank 

– Edited by Jack Davies

 

Peter Garnry is head of equity strategy at Saxo Bank

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