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Malaysian firms post weaker Q1 earnings on challenging operating conditions

Publication Date : 02-06-2014


Malaysian companies may continue to struggle to live up to the market’s still lofty earnings projections after a dismal start this year, which prompted analysts to lower their expectations.

Though some analysts pointed out that traditionally the January to end-March period had been the weakest for many companies, it is getting harder for investors to get excited about earnings after two years of relatively modest single-digit profit growth.

“We have made some adjustments to our full-year forecasts for some companies,’’ said a head of research, who declined to be named ahead of the company’s strategy report coming out this week.

“Overall, the first-quarter results season was a bit of a disappointment,’’ he added.

A number of big stocks, including Petronas Dagangan Bhd, Sime Darby Bhd and UEM Sunrise Bhd had seen their target prices slashed and their share prices stumbling in May.

With the FTSE Bursa Malaysia KL Composite Index still riding high at near record levels, bargain hunters would need to dig deeper for attractively priced stocks.

A quick round up of the recently ended first-quarter results season revealed plenty of evidence that profit growth at smaller companies continued to outpace their bigger peers.

Petronas Dagangan was the biggest casualty. Its share price plunged 20 per cent from the recent peak after the first quarter ended March 31 net profit fell 35 per cent to 155 million ringgit (US$48,27 million). Revenue improved 9 per cent to 8.3billion ringgit, but margins contracted as the company stepped up spending on marketing and distribution.

At 25.24 ringgit last Friday, the stock was traded at 28 times projected earnings.

Petronas Dagangan is largely involved in the retail segment, where competition is intense.

Other oil and gas companies in the upper segment of the industry had a better quarter. Dialog Group Bhd, for instance, is on track for a strong year after its net profit for the three months to March 31 improved 6 percent to 49.6 million ringgit, lifting the nine-month earnings to 163.6 million ringgit.

The robust expansion, however, was short of expectations, making up only 63 per cent of the market’s full-year consensus forecast.

CIMB Research analyst Noziana Mohd Inon said that Perdana Petroleum Bhd was the only oil and gas company under her coverage that beat the market with better-than-expected first-quarter earnings.

Living up to the market’s high expectation will push companies to deliver, and for property developer like UEM Sunrise, this may include land sales to meet any shortfall in profit.

The firm recently told analysts it is sticking to its full-year target of achieving a 25 per cent growth in revenue and 10 per cent expansion in net profit.

It will be a tall order after the group only managed to book 123 million ringgit in new sales during the first three months of 2014. Its full-year target is 3.2 billion ringgit.

Standalone developers with huge exposure in Iskandar Malaysia are at risk to mood swings in the market. Sime Darby could offer a more palatable conservative alternative.

Sime Darby owns a 40-per cent stake in the UK’s Battersea Power Station (BTS) redevelopment project, which recorded a 95-per cent take-up rate in the recently launched second phase, consisting of 254 homes.

As it is, the BTS project is yet to be a significant contributor to the group. Property made up about 5 per cent of Sime Darby’s total revenue of 10.3 billion ringgit in the third quarter ended March 31.
us$1:3.211 ringgit


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