Stocks to watch: Sunway, Fajarbaru, oil and gas, Allianz

KUALA LUMPUR: Stocks on Bursa Malaysia are expected to trade in a tight range with some downside pressure on Monday, March 7 as investors worry about the impact of record oil prices on the economy while consumers cope with the rising costs of food.

The revolt in Libya continues as Muammar Gaddafi's forces captured part of a town in western Libya on Friday, but rebels said they had taken the coastal oil town of Ras Lanuf, extending the territory they control in the east of the country.

The fighting appeared to confirm the division of the oil-producing desert state into a western area round the capital Tripoli held by forces loyal to Gaddafi and an eastern region held by those rebelling against his four-decade rule.

CIMB Economics Research had recently estimated the federal government’s fuel-related subsidies could reach RM14 billion based on the current oil price of US$90 to US$100 per barrel.

“If the oil price rises to US$130 to US$140 per barrel, the amount of subsidies could balloon to at least RM18 billion to RM20 billion,” it said in a recent report.

Under the Budget 2011, the federal government earmarked 6.3% of the total operating expenditure (opex) or RM10.3bn as subsidies for LPG, diesel and petroleum, based on an average oil price of US$85 per barrel. In 2008, subsidies for fuel and petroleum-related products amounted to RM17.6 billion or 11.4% of opex.

Meanwhile, Wall Street erased most of its weekly gains on Friday as fears of more geopolitical turmoil and higher oil prices threaten to stifle rallies in coming weeks.

The worries overshadowed strong labour market news. U.S. unemployment fell below 9% for the first time in nearly two years, but investors quickly turned to focus on intensified fighting in Libya and simmering unrest throughout the region. Brent crude prices rose above SUS$116 a barrel and the CBOE Volatility Index VIX, Wall Street's so-called fear gauge, rose 2.7% to 19.11.

Stocks to watch on Monday include SUNWAY HOLDINGS BHD, Fajarbaru Builder Group Bhd, oil and gas-related companies, UEM Group Bhd and ALLIANZ MALAYSIA BHD.

Sunway’s unit Sunway CONSTRUCTION Sdn Bhd Holdings Bhd has secured a RM257.96 million contract for the proposed construction of part of the Legoland Malaysia Theme Park in Johor. Sunway Construction had accepted the letter of award from IDR Assets Sdn Bhd to build package four of the theme park.

Fajarbaru’s unit has received the letter of acceptance from the BINA PURI HOLDINGS BHD []-TIM Sekata joint venture for part of the light rail transit (LRT) extension project valued at RM62.66 million.

Its unit Fajarbaru Builder Sdn Bhd was appointed by Syarikat Prasarana Negara Bhd as the nominated sub-contractor to the joint venture.

Oil and gas related companies will continue to trading interest, underpinned by the high oil prices and Petroliam Nasional Bhd’s RM250 billion plan in the next five years in exploration and asset replacement to maintain the exploration levels.

Other companies in the news are BANDAR RAYA DEVELOPMENTS BHD, whose unit BR Property Holdings Sdn Bhd has secured a RM450 million term loan to repay inter-company loans, payment of dividend and working capital purposes.

MUTIARA GOODYEAR DEVELOPMENT Bhd has launched its new phase of its lifestyle homes in Nadayu 92, Kajang with a gross development value (GDV) of over RM40 million.

UEM Group Bhd is looking into investing more in India’s infrastructure development projects particularly expressways, which presents tremendous growth potential. The projects would be undertaken by PLUS EXPRESSWAYS BHD and UEM BUILDERS BHD.

OSK Research has initiated coverage of Allianz Malaysia with a BUY, at a target price of RM5.68, derived from a sum of parts valuation.

Riding on potentially strong growth in the life insurance industry and a re-rating of motor insurance, Allianz as the biggest general insurance player is poised to benefit from the encouraging industry outlook.

“The company is also seeking to establish a foothold in the fast growing takaful industry to diversify its business,” the research house said.

OSK Research said apart from being the No. 1 one player in Malaysia’s general insurance industry with gross written premiums (GWP) totaling RM1.3bn in FY10, Allianz’s life insurance business is no less a consistent performer, chalking up RM1bn in GWP on the back of a robust double digit growth of 18.5% in FY10.