Stocks In Focus MY (Utilities Outlook, Shin Yang, Taliworks Corp) – 29/12/14
SYSCORP (5173), TALIWRK (8524)
Utilities Kept ‘Overweight’ On Positive Earnings Outlook
Affin Hwang Capital is maintaining its ‘Overweight’ view on the utilities sector due to its defensive qualities and good earnings visibility amid volatile equity markets.
The research house remained positive on Tenaga Nasional, given its resilient business model and good cash flow. It believes that a potential tariff hike in July 2015 is possible, following the implementation of the imbalance cost pass through mechanism, which will give Tenaga very strong earnings visibility by being insulated from fluctuations in fuel costs.
Meanwhile, the research house also remained upbeat on MMC Corporation, with the relisting of its 51 percent-owned Malakoff as a catalyst for the stock, by reducing gearing significantly and therefore improving earnings from lower financing costs.
Significance: Tenaga remains Affin Hwang’s top pick for the sector, noting the firm’s share seemed undervalued due to scepticism over its chance to recover fluctuations in fuel costs due to a delay in tariff hike. The research house also said that YTL Power International will appeal to investors looking for high yields, if dividend payouts are sustained.
Shin Yang Sees Earnings Boost From Fuel Price Drop
Shin Yang Shipping Corporation, which owns and operates a fleet of 297 vessels, will see a boost to its bottom line if the current low bunker fuel price stays. The group has benefited from a drastic drop in bunker fuel price as marine fuel oil plunged to US$450 per tonne from US$600 earlier in 2014.
Bunker fuel makes up between 30 percent and 35 percent of the firm’s operating costs. Currently, Shin Yang’s annual fuel consumption bill is around RM130 million and lower bunker fuel price will significantly reduce its operating costs.
Based on current bunker fuel costs, the group’s profit margin is estimated to rise by 7 percent to 8 percent assuming that the demand for cargo and freight charges remains unchanged.
Significance: Going forward, the group expects its container shipping business to remain stagnant due to the world’s challenging economic environment but believes its crude palm oil transportation business to stay positive. Shin Yang also noted the mixed impact of the strengthening US dollar against the ringgit, in terms of higher freight rates but also higher imported raw materials cost.
Taliworks Eyes US, Aussie Matured Assets
Taliworks Corporation, fresh after the RM265 million takeover of the New North Klang Straits Bypass Expressway (NNKSB), is looking at acquiring mature infrastructure assets in developed countries, which includes US and Australia.
For its overseas ventures, Taliworks hopes to work with the Employees Provident Fund (EPF), with which it has established a 51-49 joint venture in August this year. The firm shared that assets it was seeking should ideally have more than five years of operating history.
As for the NNKSB, the group would have a 63.5 percent stake in it after completion of the takeover, which is estimated to contribute some RM19 million to its revenue. NNKSB’s revenue already exceeds direct operating costs yielding immediate positive gross operating margins and will be cashflow accretive for the firm.
Significance: The firm noted that cash distribution from the proposed acquisition of NNKSB would not be immediate and dividend payout is expected in 2016 or onwards. Separately, it was also noted that Taliworks’ partnership with the EPF, is fairly new and a development that surprised the market.
http://www.sharesinv.com
SYSCORP (5173), TALIWRK (8524)
Utilities Kept ‘Overweight’ On Positive Earnings Outlook
Affin Hwang Capital is maintaining its ‘Overweight’ view on the utilities sector due to its defensive qualities and good earnings visibility amid volatile equity markets.
The research house remained positive on Tenaga Nasional, given its resilient business model and good cash flow. It believes that a potential tariff hike in July 2015 is possible, following the implementation of the imbalance cost pass through mechanism, which will give Tenaga very strong earnings visibility by being insulated from fluctuations in fuel costs.
Meanwhile, the research house also remained upbeat on MMC Corporation, with the relisting of its 51 percent-owned Malakoff as a catalyst for the stock, by reducing gearing significantly and therefore improving earnings from lower financing costs.
Significance: Tenaga remains Affin Hwang’s top pick for the sector, noting the firm’s share seemed undervalued due to scepticism over its chance to recover fluctuations in fuel costs due to a delay in tariff hike. The research house also said that YTL Power International will appeal to investors looking for high yields, if dividend payouts are sustained.
Shin Yang Sees Earnings Boost From Fuel Price Drop
Shin Yang Shipping Corporation, which owns and operates a fleet of 297 vessels, will see a boost to its bottom line if the current low bunker fuel price stays. The group has benefited from a drastic drop in bunker fuel price as marine fuel oil plunged to US$450 per tonne from US$600 earlier in 2014.
Bunker fuel makes up between 30 percent and 35 percent of the firm’s operating costs. Currently, Shin Yang’s annual fuel consumption bill is around RM130 million and lower bunker fuel price will significantly reduce its operating costs.
Based on current bunker fuel costs, the group’s profit margin is estimated to rise by 7 percent to 8 percent assuming that the demand for cargo and freight charges remains unchanged.
Significance: Going forward, the group expects its container shipping business to remain stagnant due to the world’s challenging economic environment but believes its crude palm oil transportation business to stay positive. Shin Yang also noted the mixed impact of the strengthening US dollar against the ringgit, in terms of higher freight rates but also higher imported raw materials cost.
Taliworks Eyes US, Aussie Matured Assets
Taliworks Corporation, fresh after the RM265 million takeover of the New North Klang Straits Bypass Expressway (NNKSB), is looking at acquiring mature infrastructure assets in developed countries, which includes US and Australia.
For its overseas ventures, Taliworks hopes to work with the Employees Provident Fund (EPF), with which it has established a 51-49 joint venture in August this year. The firm shared that assets it was seeking should ideally have more than five years of operating history.
As for the NNKSB, the group would have a 63.5 percent stake in it after completion of the takeover, which is estimated to contribute some RM19 million to its revenue. NNKSB’s revenue already exceeds direct operating costs yielding immediate positive gross operating margins and will be cashflow accretive for the firm.
Significance: The firm noted that cash distribution from the proposed acquisition of NNKSB would not be immediate and dividend payout is expected in 2016 or onwards. Separately, it was also noted that Taliworks’ partnership with the EPF, is fairly new and a development that surprised the market.
http://www.sharesinv.com
