- Donkey-hide gelatin maker Dong-E-E-Jiao and Han's Laser tumble by the daily limit after saying first-half profit probably fell by at least 65 per cent
Chinese stock traders are bracing themselves for bad news during the upcoming earnings season after two "white horses" caught investors off guard with their profit warnings.
Dong-E-E-Jiao, a Chinese traditional pharmaceutical company, that had posted profit increases for 12 consecutive years, and Han's Laser Technology Industry Group, once a favourite among foreign investors, said in exchange filings that first-half earnings may have dropped significantly.
Both stocks plunged by the 10 per cent daily limit in Shenzhen on Monday.
Equity traders will be closely watching the earnings of some 3,678 companies listed on the Shanghai and Shenzhen exchanges. The results, which will be released until the end of August, are crucial to revive a rally that had made the Shanghai Composite Index the world's best performing benchmark earlier this year. The index's ranking has slipped beyond the top 10 as the momentum has weakened after a gain of as much as 31 per cent.
Dong-E-E-Jiao, a maker of donkey-hide gelatin, said that profit for the first six months probably fell between 75 per cent and 79 per cent from a year earlier. The Shandong-based company cited increased production capacity, reduced expectations for product prices and destocking by downstream customers.
The stock slumped 3.93 yuan to 35.42 yuan. Until Friday's close the stock price had barely changed this year.
Han's Laser said in a separate statement that profit may have decreased between 60 per cent and 65 per cent because of reduced capital expenditure by customers amid a downward cycle in the consumer electronics industry and losses incurred from foreign exchanges. The stock fell 3.61 yuan to 32.45 yuan, trimming its gain to 6.9 per cent this year. Han's Laser was so popular among overseas investors that it was halted from trading in the exchange link with Hong Kong in March because the foreign ownership in the stock had been reached.
"The two companies were seen as 'white-horses' (blue-chip stocks) and their earnings were below the market expectations by a large margin," said Wu Kan, an investment manager at Soochow Securities in Shanghai. "Corporate earnings may stabilise going forward because of signs of improving economic fundamentals."
The Shanghai Composite edged up 0.4 per cent at the close as better than estimated economic data offset the earnings woes. China's industrial production, retail sales and fixed-asset investment all topped analysts' projections in June, according to the data from the National Bureau of Statistics on Monday.
It might be an indication that earnings growth had probably hit bottom in the second quarter. Profit growth rate for companies on the CSI 300 Index, the 300 most valuable stocks on the mainland's bourses, would probably rebound to 15 per cent in the third quarter after falling to 2.6 per cent for the previous three-month period, according to Bloomberg data.
Shenwan Hongyuan Group has a similar view. The key companies covered by the Shanghai-based brokerage could report profit growth of 9.7 per cent and 20 per cent in the third and fourth quarter respectively after a 3.7 per cent increase in the April to June period, it said in a report this month.
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