With the time of year approaching when companies release their annual results, many investors are bracing for bad news.

Companies generally do not release their results for the previous year until March or April, but most listed firms have already released a forecast of their results for 2012.

More than 1,050 companies listed in the mainland capital market have released their forecasts so far, and over 40 percent of them have warned of declining profits or losses in 2012, according to statistics from financial information provider iFinD.

The level is up from the 33 percent of listed companies that forecast declining profits or net losses for 2011, and around 20 percent for 2010.

A lean year

A total of 108 listed companies have forecast net losses for 2012, data from iFinD showed. Experts said that 2012 has been the worst year in terms of company performance in the past three years.

Sinosteel Jilin Carbon Co, a listed subsidiary of Sinosteel Corp, has forecast a decline of 9,420 percent in terms of profit. The company said it expects net losses of 150 million yuan ($24 million) for 2012. 

"In general, mainland listed companies are not likely to report good performance in 2012, because of the global economic downturn as well as sluggish domestic demand," Xu Guangfu, a strategy analyst at Xiangcai Securities, told the Global Times Monday.

In the first three quarters of 2012, China's GDP growth dropped to 7.7 percent, compared with 9.4 percent over the same period of 2011. Though the slowdown in China's economy has shown signs of bottoming out, Xu said it will take time for the improvement to be reflected in companies' profitability.

"Some listed companies that have performed poorly may delay the announcement of their profit forecast, so the number of firms with declining profits may grow further," Li Ling, an industry analyst at ChinaVenture Investment Consulting Group, told the Global Times Monday.

Companies listed on the small and medium-sized enterprises board (SME Board) and growth enterprise market (GEM) used to be a major area of increased profits in the past. However, in 2012, companies in the two markets were also hit hard as domestic SMEs have been experiencing tough times in 2012, Li noted.

"Though the economy is rebounding, companies in sectors such as steel and solar power still will not see an obvious improvement in 2013," Li noted.

However, Li Daxiao, research director at Shenzhen-based Yingda Securities Co, told the Global Times Monday that the mainland stock exchanges will see a bull market in 2013, and most listed companies in the mainland will see their profits report positive growth again in 2013.

The market has been showing signs of growth recently, boosted by the prospect of better company performance in 2013, Li noted.

Ailing industries

Experts noted that companies in the steel industry, shipping industry, machinery and solar power sectors are most likely to report dropping profits for 2012.

Chongqing Iron and Steel Co, which has not yet released its profit forecast for the whole of 2012, earlier reported net losses of 1.17 billion yuan in the first three quarters.

Shipbuilder China Rongsheng Heavy Industries reported profits of 21.5 million yuan for the first three quarters of 2012, but announced on December 24 that it expects to incur losses for the whole of 2012. Shares in the company dropped 2 percent following the warning.

However, shares in Chongqing Iron and Steel were not affected too much by its losses, partly because the company announced on December 28 that it had secured a subsidy of around 2 billion yuan from the local government.

Boosted by the news, the companies' shares rose 7 percent the same day on the Shanghai Stock Exchange.

However, other companies have not been so lucky. Leading shipping company China COSCO Holdings reported combined losses of 6.4 billion yuan in the first three quarters of 2012, and in 2011, the company reported net losses of 10.4 billion yuan, but it has not received any subsidies to bolster its performance.

The company's share price has dropped to around 4 yuan at present, compared with over 40 yuan when the company first listed in 2007.

According to market rules, shares in a company will be listed as ST (Special Treatment) shares if the company reports losses for two consecutive years, and the company will face being delisted if it fails to move back into profit in the third year.

Experts said that given the sluggish global shipping industry, COSCO will probably report a loss for 2012, in which case it will become the largest ST company in the mainland capital market.

"However, it is not very likely that COSCO will get delisted, as it is a State-owned company, and the government may offer it subsidies," Xu noted.

Real profits?

Among companies that reported good performance in 2012, there are concerns that some may have offered false financial reports.

Some 49 percent of China's 1,689 listed non-financial companies are suspected of having offered false data in their financial reports in 2012, with the largest proportion in the real estate industry, according to an assessment of financial reports by the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce on January 6.

Among the 566 companies that have forecast profit growth for 2012, more than 60 have expected profit growth of 100 percent or more.

Shenzhen-based bio-pharmaceutical company Apeloa Co has forecast a 1,597 percent surge in net profit in 2012, to 140 million yuan.

Experts said that companies in banking, real estate and consumer goods would perform better in 2012 in terms of profit growth.

"Profit growth in the banking and real estate sectors is stable, and although real estate stocks have been affected by the government's tightening policies in 2010 and 2011, they have reported better performance in 2012," said Xu.

Li from ChinaVenture said that stocks that are less affected by the macro-economy, such as consumer goods, bio-pharmaceutical and agricultural companies, are expected to see improved profits in 2013.

Li further noted that companies that were eyeing a listing in the mainland market in 2012 may lose the opportunity to get listed in 2013.

"They have tried to make their 2011 financial reports look good, but as some of them may incur losses for 2012, they may no longer be qualified to get listed in the capital market," said Li.