• Tue
  • Sep 23, 2014
  • Updated: 5:06am

Who's reaping the windfall?

PUBLISHED : Monday, 23 July, 2012, 12:00am
UPDATED : Monday, 23 July, 2012, 12:00am

The impact of falling oil prices reaches many firms. Investors might wonder which listed firms might be profiting most. The following are the sectors and the firms to watch:

Airlines

Airlines, particularly those on the mainland, get big boosts from falling oil prices, as their fuel costs are largely unhedged. Good firms to look at in that regard are Air China, China Eastern and China Southern. Analysts project as much as a 6 per cent share price rise for the airlines for each drop by US$1 in the price of a barrel of oil.

Mainland firms tend to borrow in US dollars, but their income is primarily in yuan. So they have been hurt by the non-appreciation of the yuan this year. The airlines used to be able to book solid gains simply by watching their yuan income appreciate relative to the US dollar, but not this year.

Budget airline Air Asia has enjoyed strong share price gains since the start of last year because of declines in jet fuel prices.

The airline's gains seem mostly related to good marketing and customers' increasing appreciation for cheap tickets. Goldman Sachs research says the Air Asia share price is most sensitive to the carrier's ability to fill its planes, with fuel costs the second most important factor moving its share price. Air Asia has seen its passenger numbers increase by 16 per cent in the first half of this year compared with last year.

Power

China's independent power producers such as Huadian Power, China Resources Power, Datang and Huaneng Power get a big boost from dropping coal prices, which accounts for about three-quarters of the firms' costs.

Keith Li, a utilities analyst for the brokerage CIMB, says declining interest rates on the mainland help the power producers because they tend to carry a lot of debt. Li says there is a good chance mainland officials will let the utilities raise prices later this year, as general inflation pressures subside. This bodes well for share prices.

The share price of Malaysian power firm Tenaga is also highly sensitive to the price of coal, according to analysts.

Food and beverage

This sector, which sells a lot of instant noodles and beverages, spends heavily on packaging, which is typically derived from petrochemicals. The sector's profitability, therefore, is highly sensitive to declines in the price of oil. This is particularly true for drinks, many of which come in plastic bottles.

For those wanting to take a punt on oil-sensitive stocks, the food firms to watch are Uni-President, Tingyi, Want Want and China Foods, which all spend a lot on packaging.

But oil prices are just one variable. For example, Uni-President and Tingyi are big instant-noodle makers and highly exposed to changes in the price of palm oil, a key ingredient of such snacks. Sugar is another big variable cost.

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