China reported improved industrial enterprise profits – ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 27, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Prakash Sakpal, Economist at ING, notes that the latest Chinese industrial enterprise profits showed improvement but weak sales and rising account receivables reinforce a weak profit outlook.

    Key Quotes

    “The contraction in industrial enterprise profits narrowed to 1.7% YTD YoY in September from 1.9% in August. This implies a 19.6% MoM NSA bounce in profits in September alone, which is consistent with the seasonal pattern observed in recent years. Profits grew 3% in 2014. Sales bounced 6.5% MoM NSA in September but cumulative growth slowed to 1.2% YoY from 1.3% in August (+8.0% in 2014). Slowing sales explain slowing profits while growth in account receivables picked up to 8% YoY YTD from 7.9% in August (+11.3% in 2014).”

    “Slowdown in sales revenue and profits and rising accounts receivable could feed into financial distress in heavily-indebted manufacturing firms, which we fear potentially cascading into the banking system and raising NPLs to the point that the banking system is unable to support the real economy.”

    “Averting such a hard-landing scenario depends on sustaining strong manufacturing growth and banking system liquidity, the first of which is closely correlated with profits growth. The policy easing already implemented and the scope for further easing make a soft landing the baseline scenario.”
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