Minor blips in earnings for Malaysia firms

Flood has forced Notion VTec, Eng Teknologi and Fraser & Neave Holdings to halt temporarily their operations in Thailand, but the extent of the damage has yet to be ascertained.

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Kuala Lumpur: Malaysian companies with operations in Thailand may face a blip in earnings in the current quarter due to the worst floods in well over half a century in the kingdom, analysts say. Thus far, Notion VTec Bhd, Eng Teknologi Bhd and Fraser and Neave Holdings Bhd have announced temporary closures of their respective facilities due to the floods . They said the flood had forced the halt of their operations, but the extent of the damage has yet to be ascertained. Bina Puri executive director Matthew Tee Kai Woon told Business Times that it is business as usual for the company, which has construction contracts worth more than RM50 million in Bangkok. "Despite the chaos, we have not stopped work and we do not think the situation will have any impact on our earnings," he said. Mercury Securities head of research Edmund Tham said here yesterday that the impact will be small as Thailand is not a significant earnings driver, contributing just under 10 per cent to some of the companies' earnings. "The floods have affected the supply chain for manufacturers and logistics firms with railroad and truck services being halted. "We would like to think the worst is over but there is another tropical storm coming, which may affect Bangkok, where most Malaysian companies are located," he said. Mercury Securities is maintaining its earnings forecast on Malaysian firms with businesses in Thailand. "We are more concerned about Europe and the US as it affects global trade," Tham told Business Times. Floodwaters have ravaged 60 of Thailand's 77 provinces over the past two months, forcing operations of over 500 factories, including those operated by Nidec Corp, Honda Motor Co and Canon Inc, being suspended, with some facing shutdowns for as long as three months. OSK Investment Bank, however, is reiterating its underweight stance on the technology sector pending affirmative indications of the quantum of damages suffered by the companies. "The situation prompts us to take a look at the hard-disk drive (HDD) component makers under our coverage, all of which have a presence in Thailand, to gauge the potential impact on the sector should the floods worsen. "In view of the weakness in the end-consumer demand for HDD amid rising demand for solid-state drives, the latest production woes are likely to aggravate the situation. Hence our cautious stance stays," the research house said. Subsequently, Maybank Research downgraded Notion VTEC, one of the HDD players which had to shut down, for the time being, its Thailand operations, to a "hold" from the "buy" recommendation previously. Maybank's 12-month price target for Notion VTEC is now RM1.50 a share. Affin Investment Bank head of research Andy Ong said any disruption in Thailand is temporary and will not be very severe to the business. "In Japan's case, it was a nuclear-tsunami thing. For Thailand, it is only flooding and when the water resides, business will be back to normal. "For technology firms, I don't think the impact would be so severe as demand has been slowing down due to weak global trade," he said.