Asian markets trading higher Commonwealth Bank of Australia dominates reporting season today

Asian markets were trading higher at midday, with property stocks pushing the Hang Seng Index with gains.

In Australia, the reporting season is well on its way with the largest bank – Commonwealth Bank of Australia – reporting earnings of $3.58 billion, which is in line with expectations.

The interim result is in line with market expectations with cash earnings of $3.58bn. The result was driven by an improvement in all divisions except for wealth management which has no doubt been impacted by weakness in equities markets. The interim dividend of 137 cents per share was slightly below market estimates of around 141 cents per share so there might be some very slight disappointment here.

Our focus is on two areas – loan quality and funding. On loan quality, impairment costs were down during the period – $545m compared to $722m last year. We also note the improvement in loan arrears. Total loans in arrears but not yet impaired – i. e. loans where repayments have been made but not yet written off by the bank – totaled $9.9bn which is actually down from the $10.6bn reported in June last year. It seems like the recent round of interest rate cuts from the RBA is helping address the rate of arrears.

On funding, total deposits in Australia have continued to grow – up from $363bn to $385bn since June last year. This highlights the strength in CBA’s ability to raise money within its core domestic market to fund lending growth. CBA still generates around 62% of its total funding from customer deposits, up from around 60%. Net interest margins were down slightly from 2.25% in June to 2.15% in December but the decline is not significant enough to threaten earnings.

Another company reporting today is Westfield Group, which announced that it is divesting US and UK assets and redeploying cash into a buyback and opportunities elsewhere. The market loves a buyback, particularly in the real estate sector where many companies have been trading at a discount to book value.

The rotation of assets is part of a renewed strategy to target development in emerging opportunities, deploying the global experience in building quality retail assets. We wouldn’t be surprised if Westfield moves into other BRIC economies having recently secured development opportunities in Brazil. India and China are real possibility though maybe a few years away.

Australian listed Carsales.com said net earnings grew by 20% during the half despite increasing the number of staff by 10%. There was solid growth across all revenue divisions, despite some weakness in private listing, but the leverage to dealers is proving quite resilient.

The results show the ability to achieve very strong returns on equity in a nicely crafted niche segment.  Carsales.com estimates 75% of all time spent looking at automotive classifieds websites around Australia was done on their network of sites. The group has around $25m of cash on balance sheet and we hope it invests well to ensure it remains the dominant player, knowing very well the fate of other classifieds businesses which let technology creep up on their once dominant market position.