Recently released results of some of Papua New Guinea’s major companies indicate that the economic downturn in 2015 put significant pressure on earnings. However, while energy companies suffered most, PNG’s finance sector proved resilient.

‘PNG companies by and large did not fare as well as prior years as a result of a multitude of factors,’ says Raicie Guillermo, Team Leader of Investment Analysis and Research for Kina Funds Management. ‘These included the decline in consumer activity post the LNG construction phase and macro-economic headwinds stemming from a downturn in global commodity prices.’

Bank South Pacific ‘effectively utilized its market share and increased its regional foot print.’

Raicie Guillermo Source: Kina Funds Management

Financial sector strong

Profits in the financial sector, according to Guillermo, were affected by ‘foreign exchange pegging’ and ‘competitive pressures from within the market.’ Other head winds were ‘restrained market capacity and a tight interest rate environment (which) bridled loan book growth (restricted the increase in loans) and subsequent earnings.’

Notwithstanding these pressures, the largest commercial bank, Bank South Pacific, ‘effectively utilized its market share and increased its regional foot print,’ Guillermo tells Business Advantage PNG. He describes the performance of BSP, which is PNG’s largest listed company, as ‘outstanding.’

BSP increased its earnings by 4.8 per cent, which Guillermo says was better than the foreign banks in PNG. BSP is providing a dividend yield of ‘about 10 per cent,’ he says.

Guillermo says the performance of newly listed company Kina Securities was ‘most successful’ despite the subdued economic conditions. ‘Kina’s performance was a standout in spite of the competitive pressures prevalent in the market,’ he says.

Earnings in the energy sector have been affected by the downturn in commodity prices.

‘The acquisition of Maybank PNG enabled Kina to complete its repertoire of financial services and achieve earnings growth. 2016 is expected to be a tough year for all sectors, however.’

Guillermo says Kina Asset Management (KAML), which is PNG’s only listed equity fund, experienced an improvement in its fortunes in 2015, which has been attributed to its ‘increased offshore exposure’. He says the company generated an investment gain of 9 per cent as the ‘year-end rally on global markets gained momentum’. But he acknowledges that 2016 looks to be ‘more of a challenging year.’

Rabbie Namaliu Source: Kina Securities

Sir Rabbie Namaliu, chairman of KAML said the company’s global funds generated a total return of 14.8 per cent. “Our year end investment gain of 9 per cent puts us amongst the leaders on POMSoX,” said Namaliu.

Resources sector struggles

Earnings in the resources sector were affected by the downturn in commodity prices. Guillermo says Oil Search has ‘felt the brunt of the collapse of commodity prices – more so than most domestic entities.’ The company recorded a net loss after tax of $39.4 million (K122 million) due to impairment losses on some of its assets.

‘Despite the performance woes, the company remains better placed in the current low oil price environment with a comparably lower cost of production,’ says Guillermo. Oil Search is providing an historical dividend yield of 1.9 per cent.

PNG’s two biggest superannuation funds had a mixed performance.

Newcrest Mining reported an underlying profit of $63 million (K193 million), down 65 per cent on 2014. There is no historical dividend.

Beyond resources, performances were mixed. The tightly held Steamships Trading Company announced a profit in 2015, after tax and minority interest, of K99 million, up 11.6 per cent on 2014. However, the company’s pre-tax net income (profit attributable to shareholders) fell 25.9 percent to K80.7 million. Revenue from continuing operations also fell by 12 per cent. The company blamed the slowdown on weaker economic conditions. Steamships is on an historical dividend yield of 2.9 per cent.

Super funds

PNG’s two biggest superannuation funds also had a mixed performance. PNG’s largest superannuation fund, Nambawan Super, reported an after-tax profit of K280 million for 2015. This was down from K338 million in 2014, a drop of 17 per cent. NASFUND reported its cash income in 2015 was K257 million, a 24 per cent rise on its 2014 result. But it reported valuation losses of K18 million in 2015, compared with valuation gains of K75 million in 2014.