Three stocks that slipped on ASX – Rio Tinto Ltd, Bank of Queensland Ltd and Woodside Petroleum Ltd

Rio Tinto Ltd

RIO details
·         FY17 guidance intact despite weakening iron ore prices and challenging weather conditions:Rio Tinto Ltd (ASX: RIO) witnessed a stock price slip of 0.39% on April 20, 2017 as the group reported 3% year on year (yoy) fall in iron production from Australia due to wet weather at its mines during Q1 FY17. However, RIO maintained its FY17 guidance (shipments of 330-340 million tonnes) despite weakening ore prices. During Q1 FY17, shipments from the Australian mines (Pilbara iron ore) were flat at 76.7 million tonnes against Q1 FY16, but declined by 13% quarter on quarter (qoq) owing to impact from a cyclone and parts of its rail lines were affected by heavy rainfall. Bauxite and Aluminum production rose by 2% yoy to 11.3 million tonnes and 889k tonnes, respectively, while Titanium dioxide slag production surged by 35% yoy due to higher market demand. However, mined copper production declined by 37% yoy due to a 43-day labour strike at Escondida and the strike led to lower copper guidance of 500-550k tonnes from earlier 665k tonnes.

·         Recommendation: RIO stock has corrected over 7.3% in the last three months (as of April 19, 2017). While the latest results were in line with expectations, the management has reaffirmed FY17 guidance. We maintain a “Buy” recommendation at the current price of $ 58.67

Q1 FY17 production summary (Source: Company Reports)

Bank of Queensland Ltd

BOQ details
 
·         Improved outlook for second half:Bank of Queensland Ltd (ASX: BOQ) witnessed a stock price fall of 4.4% on April 20, 2017 as the group traded ex-dividend. BOQ had earlier reported for 2% and 3% yoy decline in cash earnings and profit before tax during H1FY17. Intense competition for loans and deposits in a low interest rate environment contributed to flat loan growth and 5bps reduction in Net Interest Margin (NIM). However, management prioritized margin and credit quality over growth and guided for better H2FY17 as number of the headwinds that emerged in 2016 subsided in H1FY17.

·         Focusing on niche segments: BOQ is focusing on niche commercial segments such as retirement living, hospitality, franchising and agribusiness and experienced growth of $200 million. Recently launched new Virgin Money Reward Me home loan product has been gaining traction with customers and mortgage brokers. Despite a competitive and subdued credit growth, asset quality was robust with loan impairment expense down by 25% to $27 million on gross loans and BOQ reaffirmed 1% expense growth target for FY17. Bank has seen a 30% uplift in mortgage application volumes in recent weeks and this is expected to drive the growth in H2FY17 and focus will remain on growth prospects in niche customer segments and asset quality to drive more sustainable profit in longer term.

·         Recommendation: Over the past six months, the stock recovered 9.54%. There has been some impact owing to the Central Bank’s statement on risks in the country’s housing market. However, given the prospects, we maintain a “Buy” recommendation on the stock at current price of$ 11.64

Woodside Petroleum Ltd

WPL details
·         Positive drilling results in Myanmar and Wheatstone project setting support for mid-2017: Woodside Petroleum Ltd (ASX: WPL) stock lost 1.2% on April 20, 2017 while the group reported about 9% yoy decline in revenue to US$895 million for first quarter 2017. Overall production slid  by 10% to 21.4 million barrels of oil equivalent, primarily impacted by heavy rainfall and 21 days of tropical system weather. However, the company has maintained its FY17 production guidance at 85-90 million barrels of oil equivalent. Production uptime for the Australian portfolio was over 90% despite being impacted by a Tropical Cyclone Blanche and three potential cyclones. From business point of view, WPL has executed mid-term LNG sales and purchase agreements for ~16 cargoes for delivery in the period 2017 – 2019. Additional exploration wells have been committed to be as part of Myanmar drilling campaign in FY17. The campaign now comprises five firm (two appraisals and three exploration) and two contingent wells. Importantly, production testing of the Thalin field in Myanmar established high reservoir deliverability and reservoir properties in line with expectations and significant appraisal and exploration programs are underway. Wheatstone is also readying for first LNG in mid-2017 as the commissioning is progressing on the offshore platform and Train 1 continues to support expected first LNG in mid-2017 with first LNG from Train 2 expected six to eight months later.

·         Recommendation: There has been some sector-driven movement in the stock prices in the anticipation that U.S shale oil output might post the biggest monthly increase in May 2017 and might impact the oil prices. On the other hand, OPEC comments indicate for erosion of a global supply. Given the scenario, we maintain a “Buy” recommendation on the stock at current price of $ 32.32

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