Sunday, October 2, 2011

Stocks to watch 20111002: Bumi Armada, Tanjung, Muhibbah, Kim Loong

KUALA LUMPUR: After a horrendous September, which saw the FBM KLCI closing down 5.89% and RM88.76 billion wiped out from the market capitalisation in that month, investors will be bracing for another difficult October in the absence of fresh positive external news from Europe and the US.

For September, the KLCI fell 86.96 points to end at 1,387.13 on Sept 30 while the market capitalisation was reduced to RM1.172 trillion. Year-to-date the KLCI has lost 8.68%.

The outlook is gloomier for Europe and the US. As RHB Research Institute aptly puts it: “The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved.”

The research house added there is a growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide.

On Wall Street, stocks ended their worst quarter since the depths of the 2008 credit crisis, crippled by Europe's debt debacle, a U.S. credit downgrade and a sputtering global economy.

Reuters reported a steep slide on Friday, Sept 30 closed out a fifth month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley plummeted on concerns about its exposure to European banks.

The S&P 500 index has lost more than 14% in 3Q and over 7% in September alone. As of Thursday, Wall Street's deep downturn in the third quarter wiped out US$2.2 trillion of the Wiltshire 5000 index -- the broadest measure of U.S. stocks.

The weaker US and Europe economies would continue to impact Malaysia, especially its exporters.

RHB Research pointed out with a still cloudy global economic outlook, it believed it was "still too early to 'bottom fish' at this stage".

“As global headwinds remain strong and situations could get worse, we will continue to advocate a defensive investment strategy for investors. Under such circumstances, we believe that high dividend yielding stocks with reasonably good growth potential would be more resilient and likely outperform the overall market,” it added.

Meanwhile, on the home front, investors would focus on the Budget 2012 proposals to be unveiled by Prime Minister Datuk Seri Najib Tun Razak on Friday, Oct 7.

Economists expect Budget 2012 will be mildly expansionary. However, a mounting domestic pressures and market aversion to a heftier public debt load would curb any increase in expenditure without a concomitant rise in revenue.

Stocks to watch on Monday are companies with fresh corporate news include Bumi Armada Bhd, TANJUNG OFFSHORE BHD [], Muhibbah Engineering Bhd and KIM LOONG RESOURCES BHD [].

Bumi Armada’s order backlog has increased to more than RM7 billion after it sealed a RM1.46 billion contract to supply and operate a floating production, storage and offloading (FPSO) system in Australia.

Bumi Armada had signed the contract with Apache Energy Ltd, a major Australian oil and gas producer, for the FPSO to be located in block WA-49-L of the Balnaves Field, north-west Australia. The contract was for an initial four-year fixed term time charter with an option of a further four year annual extension period thereafter.

Tanjung Offshore awarded two contracts with a total value of RM200 million for the CONSTRUCTION [] of two platform supply vessels (PSV). It awarded a contract to MUHIBBAH ENGINEERING (M) BHD [] and to Labuan Shipyard & Engineering Sdn Bhd. The PSVs would be used to supply and support deepwater operations of oil majors in operational waters of Southeast Asia region on long term basis.

Kim Loong’s net profit for the second quarter ended July 31, 2011 surged 178% to RM33.29 million from RM11.94 million, due mainly to higher production of crude palm oil (CPO) and palm kernel oil (PKO). Its revenue for the quarter rose to RM227.53 million from RM139.02 million in 2010. The company also announced a single tier interim dividend of 6% in respect of the year ending Jan 31, 2012.

For the six months ended July 31, Kim Loong’s net profit rose to RM53.19 million from RM25.3 million in 2010, on the back of an increase in revenue to RM402.68 million from RM266.02 million.

UOA Development Bhd is to collaborate with Vietnam-based construction firm Hoa Binh Construction and Real Estate Corporation to develop its proposed Sri Petaling residential project with a gross development value of RM400 million.

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