UMW impacted by weaker ringgit

UMW impacted by weaker ringgit
Business & Markets 2013
Written by Alliance IB Research
Tuesday, 03 September 2013 13:51

UMW HOLDINGS BHD []
(Sept 2, RM12.50)
Maintain neutral at RM12.58 with a target price of RM13.60: For the second quarter ended June 30 of 2013 financial year (2QFY13) and first half (1HFY13), UMW reported core net profits of RM251 million (+11.9% year-on-year [y-o-y], +14.3% quarter-on-quarter [q-o-q]) and RM471 million (+5.9% y-o-y), respectively. The results made up 43% of house and 44% of consensus’ full year forecast and were below expectations due to the automotive segment’s weaker than expected results in 2QFY13.

While 2HFY13 earnings are expected to be stronger due to a full six-month contribution from the Naga 4 jack-up drilling rig (the contract for this commenced in April 2013), we view that the weak ringgit will have an adverse impact on the automotive segment, potentially offsetting gains in the oil and gas (o&G) segment.

A 10 sen single-tier interim dividend was declared during the quarter.

UMW’s 2QFY13 and 1HFY13 revenue of RM3.5 billion and RM6.6 billion, respectively were lower y-o-y due to lower contributions from the automotive, O&G and equipment segments. On a q-o-q basis though, revenue grew 4.2% on the back of higher sales of Toyota vehicles and higher contribution from Naga 1 and Naga 4.

Core net profit for 2QFY13 was stronger y-o-y and q-o-q largely due to better margins in the O&G segment with Naga 1 returning to charter and Naga 4 commencing in April.

For 2QFY13, the group sold 23,897 units (-18.8% y-o-y, +17.3% q-o-q) of Toyota and Lexus vehicles. Sales of Perodua vehicles were also in the positive at 50,177 units, up 4.1% y-o-y and 7.5% q-o-q. For the cumulative period of 1HFY13, Toyota sales were lower at 15.4% y-o-y.

As we are cautious on the automotive segment in 3QFY13 due to the weakening of the ringgit, we are lowering segment margins to 12.9% from 13.9%. We are also lowering margins to 13% from 14% in the equipment segment as purchases from Thailand and Indonesia are denominated in the US dollar. The resulting impact of our adjustments is a 6.4% cut to FY13 estimates. FY14 and FY15 earnings estimates remain unchanged.

We maintain our sum-of-parts-based target price on UMW at RM13.60. This translates into an implied FY14 price-earnings ratio of 13 times for the group which is on par with long-term historical average.

Given some risk to earnings in 3QFY13 due to the weakened ringgit which is likely to offset some gains in the O&G segment, we maintain our “neutral” recommendation on UMW. — Alliance IB Research, Sept 2



This article first appeared in The Edge Financial Daily, on September 03, 2013.