MMHE Outlook Dims On Weaker Crude Price And Increased Competition
With weaker crude oil prices expected to persist, not to mention increasing competition in the fabrication space, AllianceDBS Research has adjusted its valuations on Malaysia Marine and Heavy Engineering Holdings (MMHE).
According to the research house, the group’s current order book stands at RM1.8 billion, which represents less than one time book-to-bill ratio and will run down by mid-2016.
Due to the anticipation of smaller contract wins and stiffer competition going forward, AllianceDBS has lowered its FY15 new order wins assumption to RM2 billion from RM2.5 billion, which cuts its FY15 and FY16 earnings by 18 percent to 24 percent.
Significance: Due to the aforementioned reasons, AllianceDBS is of the view that MMHE is currently ‘Fully Valued’, reducing its target price of the firm to RM1.65 from RM2.25.
Nestle 3Q14 Earnings Up 10% To RM150m
For the third quarter ended 30 September, Nestle (Malaysia) reported a 9.9 percent jump in net profit to RM150.1 million. Despite a 4.2 percent fall in revenue to RM1.2 billion, bottom line growth was fuelled by lower operating expenses and a gross margin improvement of 1.9 percentage points to 36.7 percent.
The firm attributed the decrease in turnover to lower exports to affiliated companies, due to an increasingly challenging global economic environment as well as a softening in demand for some export categories.
Nestle also said that consumer sentiment was subdued due to increased living costs and further rationalisation of subsidies, noting that the group had to increase its investments in marketing and promotional activities to drive higher domestic sales.
Significance: The group expects domestic demand to remain moderate for the rest of the year and will continue to leverage on the stable growth of the Malaysian economy while continuing its long term strategy of investing in manufacturing capacity to support growth.
Stronger Earnings Expected For TNB
Tenaga Nasional (TNB) is expected to register a strong finish for its financial year ended 31 August, with its fourth-quarter earnings projected to rise significantly on an annual basis due to lower electricity-generation costs.
Analysts noted that lower coal prices and a more favourable fuel mix, with higher coal usage during the three months to August had helped TNB lower its generation costs.
According to Maybank Investment Bank (Maybank IB), TNB is presently benefiting from the lack of a fuel-cost pass-through mechanism, and thus its earnings risk is skewed to the upside.
Significance: Maybank IB estimates TNB to record a core net profit of about RM1.5 billion for 4Q14 and has kept is ‘Buy’ call on the group, with an unchanged target price of RM14.
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