ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Poor show by O&G and automotive sectors in Malaysia
Publication Date : 04-06-2014
The oil and gas (O&G) and automotive sectors, which had been attracting strong investor interest of late, were among the sectors that posted disappointing first-quarter results, analysts said.
In the O&G space, KAF Research pointed out that aggregate normalised earnings were down 11 per cent year-on-year (y-o-y), mainly dragged by Petronas Chemicals Group Bhd’s operations being affected by residual plant shutdowns scheduled from last year, while Petronas Dagangan Bhd’s margins continued to remain depressed due to higher operating costs.
The performance was further pulled down by weak numbers from the likes of Bumi Armada Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE). The research house pointed out that Bumi Armada suffered poor performances across all its business divisions, while for MMHE, it was the lack of new job wins.
Dialog Group Bhd’s results were unexciting during the quarter, it noted, up 6 per cent y-o-y but down 2 per cent quarter-on-quarter.
Kenanga Research said the first quarter in the O&G industry is typically weaker for offshore assets. Against the market, the research house said there were more misses as both Dialog and Perisai Petroleum Teknologi Bhd came in way below expectations, with the former’s 2014 nine-month results accounting for only 68 per cent of consensus forecast, while the latter continued to be loss-making for the second quarter.
The research house expected improved earnings in the 2014 second quarter, as new offshore campaigns which had been awarded from the second half of 2013 kick-start from March this year onwards, and margins normalise for new projects.
For the automotive sector, Kenanga Research viewed it as the clear-cut loser out of the various sectors under its coverage.
“This is because all auto companies under our coverage delivered weaker-than-expected results. This under-performance trend was somewhat similar to the previous reporting season in the last quarter of 2013,” research head Chan Ken Yew said.
Chan noted downward revisions of 9.5 per cent and 4.8 per cent on average in the automotive sector for the financial year 2014 (FY14) and FY15 estimates, after having been downgraded by 7.3 per cent and 3 per cent in the previous quarter.
In recent months, a number of O&G and one automotive company have attracted much investor interest.
Soon-to-be-listed Icon Offshore Bhd has seen its shares being snapped up by nine cornerstones and strong interest for its public portion of shares too. This is despite its initial public offering (IPO) shares being priced at a multiple of 18 to 19 times its FY14 projected earnings and underlies the fact that Malaysian O&G stocks remain a hot favourite with investors. Recall also that Mazda vehicle distributor Berjaya Auto Bhd (BAuto) had a successful listing last November when it shares opened for trading at 1.55 ringgit - more than double its IPO price. At the close of its first day of trading, BAuto was valued at 24 times forward earnings, trumping MBM Resources Bhd’s nine times, UMW Holdings Bhd’s 15 times, Tan Chong Motor Holdings Bhd’s 12 times and DRB-Hicom Bhd’s 13 times, as well as the sector average of 11 times. The stock last traded at 2.01 ringgit.
Other domestic-driven sectors that KAF Research favours are power and utilities, property, automotive and construction, while being generally bullish on the media sector.
CIMB Research’s top O&G picks are SapuraKencana Petroleum Bhd and UMW Oil & Gas Corp Bhd for big caps and Perisai for smaller caps. Its top construction picks are Gamuda Bhd and IJM Corp Bhd for big caps and Muhibbah Engineering (M) Bhd for smaller caps. Top property picks are Mah Sing Group Bhd and Eco World Development Group Bhd.
KAF Research said that despite an expected slowdown in consumption, aggregate domestic demand is expected to grow by over 6 per cent over the next two years. “This should provide good support to sectors catering to the domestic economy, while sectors such as O&G, construction and even banks should benefit from a potential pick-up in Economic Transfor-mation Programme activity and related financing,” research head Chehan Perera said in a report.
On other sectors, KAF Research said investors should focus more on agriculture and forestry, technology and select transport companies. The research house has upgraded the technology sector from “neutral” to “overweight” on growing optimism on Unisem (M) Bhd and Malaysian Pacific Industries Bhd.
“Within agriculture and forestry, we still expect a further pick-up in crude palm oil prices. Investors should pay more attention to the two timber companies – Ta Ann Holdings Bhd and WTK Holdings Bhd – which reported strong first-quarter results supported by strengthening timber prices.”