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Reports Malaysia

Malaysia stock market and companies daily report (March 24, 2014)

March 24, 2014, Monday, 05:27 GMT | 01:27 EST | 09:57 IST | 12:27 SGT
Contributed by Shares Investment

Strong CPO Price Uptrend Maybe Only Temporary

- The narrowing of crude palm oil (CPO) price discount to its competitors, soybean and rapeseed oils, could hamper the steady increase in the price of the commodity from reaching the targeted RM3,000 per tonne mark this year.

- According to an industry expert, demand weakening from major importing emerging markets, which accounts for nearly 85 percent of palm oil consumption, could occur if the CPO price discount to soft oils continues to sustain at US$30 to US$40 per tonne mark for a prolonged time period.

- Despite the narrowing of CPO price discount to soybean, CPO price has been holding firm in the past months which is somewhat a unique phenomenon under current market conditions. This could be due to a flow of funds from developed to developing commodity exchanges, where returns are expected to be good in the short-term.

Significance: Nonetheless, if the El Nino weather phenomenon which could affect food and energy prices hit, this will inevitably keep CPO prices high. The recent strong price rally could also be due to overseas buyers increasing their purchases before the implementation of the Malaysian palm oil export tax hike in April.

BHIC Secures RM220m Defence Contract

- Boustead Heavy Industries Corporation’s (BHIC) subsidiary, BHIC AeroServices, has received a letter from the Secretary General to the Ministry of Defence Malaysia, awarding it an in-service support contract.

- The aforementioned contract is for the maintenance and supply of spare parts for the Royal Malaysian Air Force EC725 Helicopters at a contract value of RM220 million and for a period of three years from the date of award.

- The contract will have no material effect on the earnings of BHIC Group for the current financial year ending 31 December 2014, but will contribute positively to its future earnings.

Significance: HwangDBS Vickers Research highlighted the RM220 million contract win by BHIC after it secured it from the Defence Ministry and says there could be added interest in BHIC shares today.

Maybank IB Research Maintains “Hold” Call On S P Setia, Target Price RM3.35

- S P Setia’s 1Q14 core net profit of RM68 million, was down 27 percent year-on-year (y-o-y) and 47 percent quarter-on-quarter (q-o-q), and only accounted for 13 percent and 14 percent of our and consensus full-year estimates respectively, once an estimated net of RM29 million from one-off commercial land sales was excluded.

- The earnings shortfall was attributed to higher than expected marketing and administrative expenses, as well as higher construction costs on labour shortage. As a result, profit before tax margins, excluding one-off gains, declined by 4 percentage points y-o-y and 5 percentage points q-o-q.

- Near-term earnings outlook will be driven by unbilled sales of RM10.5 billion as at end-January (2.7 times our FY14 revenue forecast; 30 percent from UK and Australia projects whose profits can only be recognised upon completion).

Significance: Maybank IB Research maintains “Hold” call on S P Setia with a target price of RM3.35 as it cuts its earnings forecasts to factor in higher operating expenses as well as construction costs. Its revised net asset value, is however, largely unchanged at RM4.78, down RM0.05, after factoring in the RM29 million disposal gain.