UMW (4588) : UMW Holdings - Driven by auto and O&G
Target RM12.03 (Stock Rating: HOLD)
UMW’s 9M14 core net profit made up 71.8% of our full-year forecast and 75% of consensus. We deem this broadly in line, as we expect a stronger performance in 4Q14 mainly from its automotive and oil & gas divisions. A second interim dividend of 15 sen per share was declared, as expected. We make no changes to our EPS forecast. We roll over our valuation to FY16 with a revised RNAV-based target price, but our Hold recommendation remains. A faster turnaround at its equipment segment and improvements in the market value of its O&G division are potential rerating catalysts. Switch to Berjaya Auto for our top pick for the sector.
Automotive segment the main driver
UMW’s core 9M14 net profit grew 6.4% yoy to RM671.7m. The automotive segment and oil & gas divisions, in particular, performed well. The automotive segment’s pretax profit jumped 14% yoy to RM1.2bn in 9M14 due to the encouraging sales of Toyota vehicles, mainly driven by Vios and Altis full model change. Toyota’s sales volume jumped 17.9% yoy in 9M14, resulting in a 2.3%pt increase in market share to 15.7%. We expect this division to perform strongly in 4Q14, mainly due to the Perodua Axia, which was launched at the end of September and was well received by the market, as proven by the 46% mom surge in Perodua’s sales volume in October 2014.
Equipment segment expected to perform better in 4Q14
The equipment segment’s pretax profit dropped 17% yoy to RM138.6m in 9M14. This was mainly caused by the lower contributions of the overseas operations of the heavy equipment segment due to the continued drop in commodity prices in Papua New Guinea and ongoing suspension of mining activities in Myanmar up to the end of August 2014, but moderated by higher demand for Toyota forklifts in the industrial segment. However, following the lifting of sanctions on jade mining activities on 1 September 2014, we expect this division to deliver a stronger performance in 4Q14.
Manufacturing and engineering sustaining turnaround
The M&E segment performed much better in 9M14 compared to 9M13, by recording a RM20.1m pretax profit in 9M14 vs. a RM24.3m pretax loss in 9M13. This was mainly due to improved operating margin contributions from the lubricant business in China, and impairment of assets in 9M13.
Source: CIMB Daybreak - 27 November 2014
Target RM12.03 (Stock Rating: HOLD)
UMW’s 9M14 core net profit made up 71.8% of our full-year forecast and 75% of consensus. We deem this broadly in line, as we expect a stronger performance in 4Q14 mainly from its automotive and oil & gas divisions. A second interim dividend of 15 sen per share was declared, as expected. We make no changes to our EPS forecast. We roll over our valuation to FY16 with a revised RNAV-based target price, but our Hold recommendation remains. A faster turnaround at its equipment segment and improvements in the market value of its O&G division are potential rerating catalysts. Switch to Berjaya Auto for our top pick for the sector.
Automotive segment the main driver
UMW’s core 9M14 net profit grew 6.4% yoy to RM671.7m. The automotive segment and oil & gas divisions, in particular, performed well. The automotive segment’s pretax profit jumped 14% yoy to RM1.2bn in 9M14 due to the encouraging sales of Toyota vehicles, mainly driven by Vios and Altis full model change. Toyota’s sales volume jumped 17.9% yoy in 9M14, resulting in a 2.3%pt increase in market share to 15.7%. We expect this division to perform strongly in 4Q14, mainly due to the Perodua Axia, which was launched at the end of September and was well received by the market, as proven by the 46% mom surge in Perodua’s sales volume in October 2014.
Equipment segment expected to perform better in 4Q14
The equipment segment’s pretax profit dropped 17% yoy to RM138.6m in 9M14. This was mainly caused by the lower contributions of the overseas operations of the heavy equipment segment due to the continued drop in commodity prices in Papua New Guinea and ongoing suspension of mining activities in Myanmar up to the end of August 2014, but moderated by higher demand for Toyota forklifts in the industrial segment. However, following the lifting of sanctions on jade mining activities on 1 September 2014, we expect this division to deliver a stronger performance in 4Q14.
Manufacturing and engineering sustaining turnaround
The M&E segment performed much better in 9M14 compared to 9M13, by recording a RM20.1m pretax profit in 9M14 vs. a RM24.3m pretax loss in 9M13. This was mainly due to improved operating margin contributions from the lubricant business in China, and impairment of assets in 9M13.
Source: CIMB Daybreak - 27 November 2014
