MARKET DEVELOPMENT
Firms Post Weaker Q1 Earnings on Challenging Operating Conditions
Firms Post Weaker Q1 Earnings on Challenging Operating Conditions
02/06/2014 (The Star) - Companies may continue to struggle to live up to the market’s still lofty earnings projections after a dismal start to the year, leading to analysts lowering 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% from the recent peak after the first quarter ended March 31 net profit fell 35% to RM155mil. Revenue improved 9% to RM8.3bil, but margins contracted as the company stepped up spending on marketing and distribution.
At RM25.24 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% to RM49.6mil, lifting the nine-month earnings to RM163.6mil.
The robust expansion, however, was short of expectations, making up only 63% 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% growth in revenue and 10% expansion in net profit.
It will be a tall order after the group only managed to book RM123mil in new sales during the first three months of 2014. Its full-year target is RM3.2bil.
CIMB Research last week lowered its target price for UEM Sunrise to RM2.93 from RM3.30 previously. UEM Sunrise shares ended the week at RM2.05, down 15% over the past one month.
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% stake in the UK’s Battersea Power Station (BTS) redevelopment project, which recorded a 95% 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% of Sime Darby’s total revenue of RM10.3bil in the third quarter ended March 31.
Sime Darby’s latest quarterly results revealed an interesting insight into the plantations business. Crude palm oil (CPO) production year-to-date has fallen 10.7% to 1.74 million tonnes.
The company expects full-year fresh fruit bunches production to decline by at least 5% due to biological stress on its oil palm trees.
Earnings for plantation companies could be under pressure in the second quarter after the benchmark CPO futures prices plunged 16% to RM2,423 a tonne on Friday from the peak of RM2,901 a tonne on March 10.
At current levels, CPO prices are at their lowest since October last year.
But slumping commodity prices is a boon for chicken farmers like Lay Hong Bhd, which reported a turnaround in the last quarter ended March 31. It posted a net profit of RM5mil on lower corn prices.
“Chicken and egg prices have remained favourable for the last six months and are projected to remain at this level for the ensuing year,’’ it told Bursa Malaysia last week.
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% from the recent peak after the first quarter ended March 31 net profit fell 35% to RM155mil. Revenue improved 9% to RM8.3bil, but margins contracted as the company stepped up spending on marketing and distribution.
At RM25.24 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% to RM49.6mil, lifting the nine-month earnings to RM163.6mil.
The robust expansion, however, was short of expectations, making up only 63% 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% growth in revenue and 10% expansion in net profit.
It will be a tall order after the group only managed to book RM123mil in new sales during the first three months of 2014. Its full-year target is RM3.2bil.
CIMB Research last week lowered its target price for UEM Sunrise to RM2.93 from RM3.30 previously. UEM Sunrise shares ended the week at RM2.05, down 15% over the past one month.
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% stake in the UK’s Battersea Power Station (BTS) redevelopment project, which recorded a 95% 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% of Sime Darby’s total revenue of RM10.3bil in the third quarter ended March 31.
Sime Darby’s latest quarterly results revealed an interesting insight into the plantations business. Crude palm oil (CPO) production year-to-date has fallen 10.7% to 1.74 million tonnes.
The company expects full-year fresh fruit bunches production to decline by at least 5% due to biological stress on its oil palm trees.
Earnings for plantation companies could be under pressure in the second quarter after the benchmark CPO futures prices plunged 16% to RM2,423 a tonne on Friday from the peak of RM2,901 a tonne on March 10.
At current levels, CPO prices are at their lowest since October last year.
But slumping commodity prices is a boon for chicken farmers like Lay Hong Bhd, which reported a turnaround in the last quarter ended March 31. It posted a net profit of RM5mil on lower corn prices.
“Chicken and egg prices have remained favourable for the last six months and are projected to remain at this level for the ensuing year,’’ it told Bursa Malaysia last week.