Economic Update - How Malaysia can benefit from lower oil prices
We think that Malaysia would benefit if oil prices were sustained at lower levels because of 1) a lower oil import bill which helps the trade balance and current account, 2) a positive second-round effect for exports and GDP whereby lower oil prices support advanced economies’ growth and feed through to higher disposable incomes and higher consumption of Asian goods and services, 3) strengthening of public finances via higher subsidy savings and increased government revenue from higher growth via the positive external effect, and 4) a lower cost of doing business and higher production amid a positive demand effect.
Alpha Edge - Signs of cracking
The US and regional equity markets should rebound soon after the sharp correction over the past fortnight. However, the medium-term trend is still down. The S&P500 monthly MACD has just turned negative while the DJIA has broken off its 1-year diagonal triangle formation. China’s Shanghai Composite is resilient but negative divergence in the daily technical indicators could mean consolidation ahead for this Index.
UMW Oil & Gas - Jacked-up optimism
UMW-OG's president Rohaizad Darus told us in a recent communication that despite the oil price fall, the company's rig contracts are intact and that there are no provisions for price revisions in the contracts. He remained positive on the company's outlook, a sentiment he shared with the media in two separate interviews that were published yesterday. We continue to value the stock at 21.2x CY16 P/E, a 30% premium over our target market P/E of 16.3x. We maintain our Add call, with the active fleet expansion and an upcoming contract for Naga 8 as potential re-rating catalysts.
Muhibbah Engineering - Getting Rapid-ly warmer?
An Edge Weekly article highlighting Muhibbah's chances of securing a RM500m job in Rapid by year-end reinforces our expectations for the company’s infra order back log, hence the news is not too surprising. We maintain our assumptions for RM600m infra job wins for FY14 and RM1bn for FY15, driven by domestic oil & gas infra. Muhibbah's latest Samalaju Port expansion project speaks volumes of the group's competitiveness and expertise in the segment. We raise our RNAV-based target price (still a 20% discount) as we roll over our valuations. Maintain Add. The stock has dropped 17% from its peak in Jul 14 due to the global sell-down - a buying opportunity. Muhibbah is still our preferred mid-cap pick. Job wins are potential catalysts.
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