Top 10 Predictions for Asian Earnings Season

Everyone from the longest-term investor to the trader with the shortest time horizon is well aware that few events have greater potential to disrupt a company’s share price than a report that that company has announced earnings that either exceed or fall short of what analysts had forecast. Given that a majority of Asian companies have a fiscal year ending in December or March, the StarMine research team scans the universe of stocks in the major markets in the region in the weeks leading up to earnings season there, to identify five companies it believes are likely to post significant upside surprises and another five it expects to fall short of analysts’ expectations.

To do this, we rely on two key StarMine models: SmartEstimates, which are generated by quantitatively analyzing the most recent forecasts by top-ranked analysts, and the Predicted Surprise, the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When the SmartEstimate diverges significantly from consensus, it becomes a leading indicator of the direction in which earnings forecasts are likely to be revised, or the nature of the anticipated surprise. Overall, the accuracy rate for this predictor in determining the direction of the anticipated surprise is around 70%. The last time we published this list, the StarMine research team succeeded in matching this accuracy rate as noted in this report. That accuracy was achieved despite the fact that the analyst estimates used as the basis for this analysis underestimated the impact of the devastating tsunami in Japan last year on the results of three companies that we had believed were likely to post positive earnings surprises.

Here is the list of Asian companies that we believe are poised to deliver pleasant surprises or nasty shocks when they report their earnings for the just-ended or just-ending 2011 fiscal year in the next few months:

TOP POSITIVE SURPRISE FORECASTS:
1. Namco: The developer of the famous Pac-Man video game had a strong showing in the Japanese markets during the holiday season giving the company a 4.7% Predicted Surprise, based on a SmartEstimate of 29.15 Japanese yen a share.

2. Galaxy: Is presenting its new casino as a high-end resort with an Asian twist; analysts report that the strategy may be paying off in the shape of an increase the in number of visitors. It now has a Predicted Surprise of 3.7% and the SmartEstimate remains ahead of consensus.

3. Sino Land Company: Easing monetary policy in China, coupled with stabilizing home prices, explains the company’s Predicted Surprise of 4.3%. Its SmartEstimate has been rising steadily over the last 90 days and now stands at 83 Hong Kong cents a share, several cents above the consensus.

4. Yangzijiang: Analysts point to the strength in Yangzijiang Shipbuilding’s order book, and the fact that, unlike its peers the company has not been plagued by order cancellations. The company boasts a 3.6% positive Predicted Surprise; the SmartEstimate has risen to 1.00 Chinese yuan per share. The industry pains remain, however. Although the company has seen EPS estimates rise, analysts have cut their revenue estimates. That indicates that the earnings improvement may be being driven by cost cutting, as management takes firm measures to address the tough economic environment.

5. Satyam: Newly rebranded as Mahindra Satyam, this computer services company is putting a past accounting scandal behind it and analysts expect the decline the rupee to boost its earnings. The SmartEstimate now stands at 8.50 rupees per share, while the company has a Predicted Surprise of 6.8%

TOP NEGATIVE SURPRISE FORECASTS:
1. Sony: The loss of market share in the key television market has delivered a blow to the company and the floods in Thailand have only added to its. Sony’s SmartEstimate is a whopping 47 Japanese yen below the I/B/E/S consensus estimate.

2. Singapore Airlines: With rising fuel prices, the main cost for airlines, and lower load capacities, analysts expect Singapore Airlines earnings to deliver weak earnings. The Predicted Surprise stands at a disappointing -18% while the SmartEstimate is currently 41 Singapore cents a share, below the consensus of 50 cents a share.

3. China Shipping: Slowing exports from China, combined with a glut of shipping containers is lowering container prices and affecting the industry margins, according to the top analysts. That’s bad news for China Shipping: The SmartEstimate currently predicts that the company will lose 0.24 yuan a share, while the I/B/E/S consensus estimate calls for a loss of 0.22 yuan a share, yielding a Predicted Surprise of -8%. Analysts also have cut revenue estimates over the course of the last year, and there is a Predicted Surprise of -2.3% on the revenue estimates. Whenever revenue falls so dramatically year over year, it’s a cause for concern.

4. Epistar: Analysts expect television manufacturers will try to push forward with the vertical integration of their operations and to increasingly produce their own LED products. The result? Profit margins on products like those produced by Epistar face competitive pressure. The I/B/E/S consensus estimate for Epistar has fallen from over 8 New Taiwan dollars to its current level of 1.45 New Taiwan dollars, but the SmartEstimate is even lower, at NT$1.34. That translates to a negative Predicted Surprise of 7.5%

5. Ajisen: The middle class seems to be losing its taste for Ajisen’s ramen noodles, even as upward pressure on wages and higher advertising expenses also eat into the company’s forecast profits. Ajisen has a -15% Predicted Surprise; its SmartEstimate has fallen to 29.1 Hong Kong cents per share today, and languishes well below the I/B/E/S consensus of 34.2 Hong Kong cents.

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