By Lee Chyen Yee and Patturaja Murugaboopathy
SINGAPORE (Reuters) - Earnings growth at China-listed companies is likely to be the slowest in three years in 2015, in line with an economy the government expects to expand at the weakest rate in a quarter of a century.
Reuters surveyed analyst estimates of full-year net profit at 704 Shanghai- and Shenzhen-listed firms that recently booked 2014 earnings, and found average growth for 2015 of 7 percent. That compared with 7.7 percent in 2014 and a spike of 18 percent in 2013.
Driving the decline are difficulties in the financial sector, which is expected to account for 67 percent of all corporate earnings in China this year, and where banks are grappling with rising bad loans and a slowing property market. Energy companies are also struggling with a drop in oil prices, and crowded sectors such as coal suffer persistent oversupply.
The earnings slowdown has so far failed to register in China's surging stock markets, where margin buying fed by easing monetary policy has helped to push the Shanghai Shenzhen CSI 300 Index (CSI300) up by a third since the start of this year. State media has dubbed the bull run "irrational".
Brokerages have seen commission income rocket due to high trading volume, and are likely to benefit further when Hong Kong investors start buying Shenzhen stocks likely from later this year. But elsewhere in the financial sector, the earnings outlook is less rosy.
"The main drag will come from the banks," said Kelvin Wong, senior Hong Kong and China equity analyst at Julius Baer.
No.1 lender Industrial and Commercial Bank of China Ltd (SS:601398) (HK:1398) is likely to log its first net profit decline this year, while Bank of China Ltd (SS:601988) (HK:3988) is set to book its weakest earnings growth since listing in 2006, according to data compiled by Reuters.
In insurance, profit growth at China Life Insurance Co Ltd (SS:601628) (HK:2628) (N:LFC) and Ping An Insurance Group Co of China Ltd (SS:601318) (HK:2318) is likely to be the weakest since 2012, the data showed.
OUT OF FASHION
At energy firms, which earn 7 percent of profit among the companies surveyed, falling global oil prices and a domestic drive toward cleaner fuel is likely to suppress earnings at the likes of PetroChina Co Ltd (SS:601857) (HK:0857) (N:PTR) and China Shenhua Energy Co Ltd (SS:601088) (HK:1088), analysts said.
PetroChina is set for a second straight net profit fall this year, while Shenhua is headed for a third and China Coal Energy Co Ltd (SS:601898) (HK:1898) for a fourth, the data showed.
"If you look at coal, it's out of fashion in the sense that the government is trying to move away from that in power generation and trying to use as little as possible elsewhere because it is the polluting factor," said Tai Hui, chief market strategist for Asia at JP Morgan Asset Management.
While renewable energy companies are benefiting from the transition, other bright spots include firms serving a growing middle class, such as those engaged in online shopping and mobile gaming as well as healthcare.
Shanghai Fosun Pharmaceutical Group Co Ltd (SS:600196) (HK:2196) is likely to post a 25 percent rise in net profit this year, after a 34 percent increase last year, the data showed.