Regular Earnings Survey

Improved prospects for domestic demand-oriented growth

We compiled the FY09 results for major Asian companies, as well as our earnings forecasts for FY10-11. We used the Daiwa 100 as our universe, which includes 100 major companies headquartered in China, Hong Kong, India, Korea, Singapore, and Taiwan. The results are as follows (dollar basis).
FY09 results (y/y): sales down 1.1%; net income up 13%
FY10 forecast (y/y): sales up 19.4%; net income up 35.6%
FY11 forecast (y/y): sales up 17.7%; net income up 19.0%

In FY09, China, which accounts for roughly half of the sales and profit in the region, maintained its sales uptrend, albeit at a more muted pace, and also achieved double-digit profit growth. Overall, China absorbed most of the sales losses and drove profit growth in the region. In FY10, major export economies Korea and Taiwan should start to see profits grow, supplementing China's domestic-demand-driven sustained expansion, and lending credence to an overall Asian earnings recovery. Compared to Japan, Asian companies have been better able to leverage earnings growth in India and China to ward off the ill effects of the global economic downturn and saw earnings start to recover earlier than Japan.

The 1.1% y/y sales decline in FY09 resulted from falls in Hong Kong, Korea, Singapore, and Taiwan, despite growth in China and India. By industry, insurance and real estate posted double-digit sales growth, but drops in consumer staples, energy, materials, and other sectors were relatively sharp. On the other hand, the 13% advance in net income was supported by China and South Korea. By industry, falling net income in industrials, materials, and telecommunication services was outweighed by advances in energy, insurance, and information technology.

The FY10 outlook for 19.4% y/y sales growth is premised on expansion in every country and sector, but Taiwan, Korea, and India are expected to be particular standouts, as are consumer staples, information technology, and materials. The prospective 35.6% net income growth is, like sales, pegged to the resumption of growth in every country and sector, but we expect Korea and Taiwan in the former, and information technology and materials in the latter to lead the pack.

The 17.7% y/y sales expansion in FY11 assumes double-digit growth for every country and sector, although China and India will probably continue to be the real stars of the show, while dominant sectors will likely include consumer staples, energy, and real estate. All countries and sectors are also expected to make a positive contribution to the 19% net income growth, with China, Hong Kong, and India doing the heavy lifting on a by country basis and consumer discretionary, utilities, and banks on a sector basis.