Analysts cut target prices MMHE and UMWOG on lower crude oil price

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KUALA LUMPUR (Oct 27): Weak crude oil prices were among the key reasons for analysts to cut their target prices for both Malaysia Marine and Heavy Engineering Holdings Berhad (MMHE) and UMW Oil & Gas Corporation Berhad (UMWOG)
As for MMHE,  AllianceDBS Research said that it would face challenges with the persisting low crude oil price coupled with increasing competition.
"The group's current orderbook stands at RM1.8 billion which represents less than 1xbook to bill ratio and will run down by mid2016," it said, adding that the orderbook contained two primary contracts with Malikai Tension Leg Platform (TLP) and SK316 central processing platform (CPP) with a 40:60 breakdown.
The research house said MMHE was expected to add to its orderbook by end of Financial Year (FY) 2014 and the first quarter of 2015.
AllianceDBS said that these contracts were "largely subcontractor roles".
"As we expect smaller contract wins going forward and stiff competition, we have lowered our FY 2015 new order wins assumption to RM2 billlion from RM2.5 billlion previously,
"As such we cut FY15 -FY16 earnings by 18-24%," it noted.
Substantiating its argument for increasing competition, the research wing cited MMHE loosing out of two major tenders in Malaysia to South Korea's Hyundai Heavy Industries (HHI).
It noted that this raises some concern as "there are few major CPP tenders" and there could possibly be a 12-24 month wait for new tender opportunities.
AllianceDBS has cut its target price from RM2.25 to RM1.65.
Despite the outlook, as of 10.50am MMHE was up by 1.3% with 2.41 million shares traded. The share price peaked at RM 2.36 earlier before settling at RM 2.35.
Meanwhile, Hong Leong Investment Bank Research lowered its target price for UMWOG from RM 4.12 to RM3.29.
It attributed this to "lower midterm oil prices, negative sentiment and lack of sizeable contract newsflow for the upstream sector".
It added that these factors also led it to believe that the oil and gas sector no longer commanded premium valuation.
Following the cut in target price of UMWOG, Hong Leong has also cut its target price of UMW from RM 12.28 to RM 11.43.
As of 11am today, UMWOG share prices have fallen 1.45% with 103,600 shares being traded. Prices rose to RM3.45 before settling RM3.40.