More pain ahead for Singapore stocks after dreary Q3 earnings season

Fundamaentals are weak, analysts warn.

Downside risks are piling up for locally-listed stocks, after most companies reported disappointing numbers in the third quarter.

A report by Maybank Kim Eng highlighted that there are now more reasons to be bearish on local companies, as Q3 earnings mostly disappointed while free cash flow and balance sheets also deteriorated.

Maybank Kim Eng is particularly disappointed with the offshore and marine sector, which had been hit by more delivery deferrals and debt provisioning.

"Many companies are treading on thin margins. Earnings quality in 3Q was poor, with results propped up by forex or one-off disposal gains. Credit problems have started to surface," said Maybank Kim Eng.

Meanwhile, although healthcare stocks looked fairly resilient, Maybank Kim Eng warned that investors should stay cautious as these stocks have relatively rich valuations.

"While investors looked past 3Q15 earnings misses, caution is justified as poor project execution or delays in M&A, which are largely concentrated in China and Malaysia, could lead to a valuation de-rating," said Maybank Kim Eng.

Overall, Maybank Kim Eng believes that Singapore stocks are headed for greater disappointment as fundamentals remain weak and risks are not yet fully priced in.

“We cut EPS for nearly all sectors, except Consumer, Telcos, Banks, and Property. Sixteen of our 56 stocks missed while 9 beat. Earnings that beat were of low quality, mostly bolstered by forex gains or non-recurring items. Also, balance sheets deteriorated. The market reaction to results suggests that the negatives are not fully priced in,” Maybank Kim Eng said.