While the destruction arising from the floods is undoubtedly major, it may indirectly benefit some Malaysian companies. Companies involved in tourism and healthcare in Malaysia may benefit from traffic diverted from Thailand, a trend that may continue even after the flood waters recede. Consumer companies may get a short term lift from increased exports to Thailand.
On the other hand, automotive and technology companies are the biggest losers.
Below are the target prices/fair value and ratings for stocks to benefit.
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June TIV continued to fall although OSK had earlier anticipated it to have hit bottom in May, largely due to amendments to the HP Act. TIV for June dived 22.6% y-o-y, 12.4% q-o-q and 9.2% m-o-m, dragging the cumulative numbers into negative territory for the first time this year, for a 1.3% contraction YTD.
OSK expect to see poor earnings q-o-q and y-o-y across the board, notably for UMW, Tan Chong and MBM Resources as margins would be pressured by plant underutilization. OSK reiterate our NEUTRAL stance on the AUTOMOTIVE sector.
Below are the target price/fair value and rating for selected stocks in automotive sector.
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OSK maintain UNDERWEIGHT call on autos as the bottlenecks in Japan to lead to a shortage of vehicles in Malaysia despite the buoyant demand in the past quarter.
Auto companies’ earnings are likely to be hit in 2Q and 3Q as poor economic efficiency and spiraling raw material prices pinch margins.
OSK expect vehicle sales in the upcoming months to decline gradually and bottom in August or September as vendors and assemblers are starting to hint of depleting inventory.
OSK mid cap BUYs in the sector are Proton and also BUYs on all the autopart makers, with their diversified revenue base, will mostly continue to supply components to the automakers.
Below are the target prices and ratings for selected stocks in automotive sector.
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March 16, 2011
Stock Picks
AirAsia,
Automotive Sector,
Aviation Sector,
Oil & Gas Sector,
Petronas,
Petronas Chemicals,
SapuraKencana,
Steel Sector,
Timber Sector,
Utilities Sector
Japan hits by worst earthquake in over 100 years. The cost of reconstruction is estimated at USD161bn. The impact on Malaysia is generally limited given that Japan’s major ports and industrial areas have been spared. However, there would still be winners and losers among some sectors. For now, OSK maintain Buy into Weakness call on the Malaysian market with year-end target for KLCI of 1680 pts remain intact.
The Winners
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Despite the rounds of interest rate hike and the gradual cut in petrol subsidy, improving consumer sentiment and a buoyant economic landscape boosted 2010 vehicle sales to end the year with a record 12.7% y-o-y growth. A healthy economic outlook, accommodative lending rates and the slew of new models in the pipeline are expected to fuel TIV growth by 2% in 2011 to 617,569 units.
However, industry margins expected to dip on inflationary pressure due to costlier raw materials and components. Nonetheless, earnings grow at a respectable pace given the favorable demand and strengthening ringgit in 1H. Maintain OVERWEIGHT on the automotive sector, with UMW and Tan Chong as top picks.
Below are target price for selected stocks in Automotive Sector.
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