Rock bottom: Singapore’s profitability hits 14-year low

Could a reversal be at hand?

Morgan Stanley's Summer Outlook report revealed that Singapore’s Net Income Margin is now at its lowest since 2000, but that there could be potential reversal in the near future.

Singapore’s Net Income Margin is expected to hit 7.6% in 2014, a far cry from 18% in 2000.

The study noted that a combination of slower global and Singapore GDP growth has adversely impacted the country’s profitability.

According to the report, “Further, we believe that slower productivity growth in Singapore also seems to have negatively affected the country’s relative competitiveness, thus impacting corporate profitability.”

However, the trend could soon be reversed thanks to a combination of improving growth outlooks and a lower base effect.

“Our analysis of trends in quarterly profitability suggests green shoots in Singapore Net Income Margins. Singapore’s profitability has seen a secular decline during the last few
years; however, in Q1C14, Net Income Margins improved on a YoY basis by an estimated 100 bps,” the report noted.

Here’s more from Morgan Stanley:

Given the developed market status, Singapore clearly is driven by significantly lower volatility in policy and political outlook. The historical trend in Singapore’s PER valuation seems driven by the trend in profitability, which has been declining steadily.

Our economist, Deyi Tan, expects Singapore’s GDP growth to come in at 3.9% and 4.0% in 2014 and 2015 respectively, versus 3.9% in 2013. Interestingly, consensus also expects Singapore’s overall profitability to trough in 2014 at 7.6%, and sees improvement in margins to 7.7% and 8.0% in 2015 and 2016, respectively.