UMW's capex to reach RM4b over next 3 years

Published: Wednesday August 28, 2013 MYT 4:11:00 PM
Updated: Wednesday August 28, 2013 MYT 4:14:04 PM
UMW's capex to reach RM4b over next 3 years

KUALA LUMPUR: UMW Holdings Bhd's capital expenditure (capex) is estimated be RM4bil over the next three years, of which the bulk would be for its oil and gas division.

RAM Rating Services said on Wednesday RM2.6bil was set aside to expand its O&G division.

"While the capex of its other divisions is envisaged to be covered by internal cash, that of the O&G segment will rely on a mix of debt and equity," said RAM Ratings' head of consumer & industrial ratings Kevin Lim.

He added UMW was expected to maintain its gearing ratio at around 0.5 times.

"To achieve this, the group is likely to fulfil its funding needs through equity. Should this fall through, UMW may scale down its budgeted O&G capex from 2014 onwards. In line with this, the group's adjusted funds from operations (FFO) debt cover is anticipated to exceed 0.4 times over the next three years," he added.

RAM Rating Services had assigned AAA/Stable/P1 ratings to UMW's RM300mil Islamic commercial papers/medium-term notes programme (MTN) (2010/2027).

Concurrently, RAM Ratings also reaffirmed the AAA/Stable rating of the group's RM2bil Islamic MTN programme (2013/2028).

UMW's core activities are the assembly and distribution of Toyota vehicles, trading of heavy and industrial equipment, provision of O&G services (with drilling and oil-field services as core offerings), manufacture of automotive parts, and distribution of lubricants.

RAM Ratings said the rating predominantly reflected UMW's strong market position and solid financial profile.

Through 51%-owned UMW Toyota Motor Sdn Bhd, the Group distributes the Toyota marque that leads the non-national segment of the Malaysian automotive industry. Toyota accounted for 16.8% of the total industry volume as at end-2012; its best-selling models are the Vios, Camry, Hilux and Hiace - the most popular in their respective segments.

The group's associate, Perusahaan Otomobil Kedua Sdn Bhd (or Perodua), commands the lion's share of A segment mini cars through the Viva.

The UMW Group is also a market leader in the domestic heavy- and industrial-equipment segments via best sellers Komatsu and Toyota, respectively.

RAM Ratings said in the O&G sector, UMW and its local peers benefit from the policies of the Malaysian Government and oil giant Petroliam Nasional Bhd (Petronas), which are designed to promote and develop domestic O&G players.

"Given UMW's ownership of jack-up drilling rigs that are typically used at relatively shallow depths, the group is poised to benefit from the development of marginal oil fields," it said.