Friday, February 23, 2024

Australian Firms Face Earnings Test After RBA Keeps Rate at 12-Year High

Commonwealth Bank of Australia, Wesfarmers Ltd. and Telstra Group Ltd. will offer a broad snapshot of how Australian companies are faring in an environment of high interest rates when they report earnings.

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(Bloomberg) — Commonwealth Bank of Australia, Wesfarmers Ltd. and Telstra Group Ltd. will offer a broad snapshot of how Australian companies are faring in an environment of high interest rates when they report earnings.

The Reserve Bank of Australia left interest rates at a 12-year high and signaled further tightening remains possible, joining global peers in pushing back against expectations for near-term easing. Shares of local lenders have rallied in the past three months in anticipation of easing that now looks less imminent. 

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Further stock gains may be difficult given weak underlying profitability trends, analysts including Citi’s Brendan Sproules said. Higher impairment costs and expenses will hurt Australian banks’ earnings this reporting season, according to Bloomberg Intelligence’s Matt Ingram.

Interest rates also held back retail and mining conglomerate Wesfarmers probably as consumers remained wary about big ticket purchases and renovation, BI said. Telstra should show it can fend off competition and increase mobile revenue going forward, helped by international roaming and overseas expansion. 

In Japan, Sony Group Corp.’s higher music and movie business earnings partly offset a drop in the game unit’s operating profit from a year earlier. Any comments on its India strategy will be of interest after it called off a $10 billion merger with Zee Entertainment Enterprises Ltd. Persistent losses in the mobile unit remained a drag on Rakuten Group Inc.’s earnings. 

In Thailand, the post-pandemic travel recovery should boost Airports of Thailand PCL’s first-quarter earnings, while lower energy prices probably helped Gulf Energy Development PCL’s earnings improve sequentially. 

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Highlights to look out for:

Monday: Airports of Thailand’s (AOT TB) profit may have more than doubled from a year ago as travelers returned and entry visa rules were eased. 

Wednesday: Commonwealth Bank of Australia’s (CBA AU) first-half profit probably fell 5.5% as fierce competition in mortgage and deposit rates crimp margins. It’s the only one of Australia’s so-called big four banks to report earnings this month, while other banks will issue trading updates. 

  • Sony’s (6758 JP) profit stays flat from a year earlier, according to consensus. The Spider-Man 2 title and upgraded PlayStation 5 consoles helped sequential sales growth in the game business, the music unit’s earnings benefited from streaming demand, and the movie business recovered after the Hollywood strike, BI said, adding that it’s expected to keep its fiscal 2024 profit guidance.
  • Rakuten Group (4755 JP) will post its 14th consecutive quarterly operating loss, dragged down by its unprofitable mobile business, consensus shows. Its operating income for internet services might remain weak, pulled down by unprofitable services transferred from the mobile unit, BI said.

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Thursday: Telstra (TLS AU) is in a good position for long-term earnings growth thanks to its mobile business, which is expected to see the sector’s revenue climb 5.4% in the fiscal first half amid higher international roaming, estimates show. A recent nationwide network outage at Optus may bring an influx of subscribers to Telstra, according to BI. The firm is also expanding abroad with plans to work on a US-Asia subsea cable. 

  • Wesfarmers’ (WES AU) hardware store chain Bunnings may see same-store sales drop 51% in the period, two estimates show. Kmart’s same-store sales probably slumped 73%, though from record sales the year before. The company is well-placed for acquisition opportunities, BI said.
  • Treasury Wine Estates (TWE AU) earnings are expected to fall because of weaker sales in the Americas. The maker of Penfolds wines said in October that a potential Chinese review of tariffs on Australian wines means its annual operating profit will be weighted toward the second half, with about 45% of the total achieved in the first half. The company may struggle to deliver on that guidance because of weakness in the US market, said analysts including Sam Teeger at Citi.
  • Gulf Energy’s (GULF TB) full-year adjusted net income may have jumped 32% as lower energy prices boosted its power business, based on consensus. Margins may also be supported by lower natural gas prices, which in turn can boost earnings for the Thai power sector. Gulf Energy’s efforts to increase capacity while expanding into digital and infrastructure businesses should support its longer-term earnings, Kasikorn Securities wrote in a note.
  • Kakao’s (035720 KS) fourth-quarter operating profit may surge 47%, the biggest jump since 2021, estimates show. Cost efforts should contribute to a stable operating margin, KB Securities said.

—With assistance from Georgina McKay, Jackie Edwards, Victoria Batchelor and Shinhye Kang.

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