Interview UMW looks to expand equipment, M&E units

by **hlk** Wed 04 Dec 2013, 17:51

Business & Markets 2013
Written by Syarina Hyzah Zakaria of theedgemalaysia.com
Wednesday, 04 December 2013 16:18
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WITH RM630 million of fresh cash from the listing exercise of UMW Oil & Gas
Corp Bhd (UMWOG), UMW Holdings Bhd will now look at several acquisitions
to expand its heavy equipment and mechanical and engineering (M&E)
divisions, slated to take place over the next six months.
In an interview, UMW president and group CEO Datuk Syed Hisham Syed
Wazir says the RM630 million proceeds raised from a partial divestment of its
stake in UMWOG through the latter’s initial public offering (IPO) will allow the
parent company to pursue M&A opportunities in the industrial products
segment.
Apart from the RM630 million, UMW has also received RM597 million from
UMWOG for settlement of inter-company loans. A bulk of the RM597 million will
go towards settling loans previously taken to fund an oil rig.
Funds received from the listing will go towards paring down debts, financing for
the Naga 4 rig (under UMWOG), working capital and future expansion, says
Syed Hisham.
“We will still have cash for potential new businesses for the group other than oil
and gas,” he says.
“Our plan [going] forward is to be one of the successful industrial
conglomerates in Asean and then we will also want to expand towards the
Asia-Pacific region, which will include Australia.
“But in the short term, our target is the Asean 10. We are currently in seven
countries, either through our equipment arm or M&E [division]. We have yet to
reactivate our business in the Philippines, Laos and Cambodia. In the next six
months or rather by the first quarter of next year, we will be announcing these
acquisitions,” he says.
According to its 2012 annual report, equipment accounted for 13.5% or RM2.14 billion of the group’s earnings while M&E contributed 4.4%
or RM703.1 million to its top line.
“A segment of the business we would like to grow under equipment is the leasing and rental of equipment like forklifts. We want to grow
the segment to 50% in the next three years from 30% now. We also see opportunity in after-sales support under equipment,” Syed Hisham
adds.
Since earlier this year, UMW had started divesting interest in non-core businesses and purchasing entities it believes can help catalyse its
M&E division.
In May, UMW M&E Sdn Bhd signed a collaboration agreement with Indonesia’s Blue Bird Group through its nominee PT Pusaka
Sukucadang to set up a joint venture company with an initial paid-up share capital of US$1 million to provide automotive components,
lubricants and service centre operations in Indonesia. “Blue Bird is mainly involved in the transport industry, managing close to 40,000 motor vehicles in
Jakarta, of which 26,000 are taxis. We see the potential in supplying components and lubricants and
are also interested in expanding into servicing motor vehicles through a territorial expansion
throughout Indonesia.
Operations will start in
1Q2014. Using our expertise, we plan to concentrate on the lubricant market and auto components by
manufacturing these products in Malaysia, and later, in Indonesia,” Syed Hisham explains.
According to a Frost & Sullivan report, Indonesia’s total industry volume (TIV) is due to reach 2.3
million vehicles annually by 2019 from 1.1 million currently, easily surpassing Thailand’s TIV. This
poses an interesting proposition for UMW, which is looking to extend its reach in the region.
“Scale-wise, there is potential to do what UMW has done in Thailand. We’re planning for the longer
term in Indonesia. We want to grow with the market and see many big players such as our partners
Toyota and Daihatsu that have built plants there. Also, Blue Bird has already announced its plans for
an IPO and is expanding in Indonesia. By
virtue of that, we want to work together with it and start building local partnerships from now,” says
Syed Hisham.
Essentially, the group sees itself as an auto-related company and believes concerns that
UMW’s earnings would be cannibalised as a result of UMWOG’s listing have been
overplayed.
“In my opinion, people have looked at us as an auto stock and I think they prefer us to be
an auto stock rather than oil and gas as it was new to us and there was a lack of
information on it. Auto is still strong and there has not been any cannibalisation,” he says,
adding that the group’s auto segment is doing well.
UMW’s Toyota and Lexus brands recently launched new models, while its associate
Perodua has introduced a concept sedan model that has garnered strong interest.
“Although the wait-and-see attitude of consumers has affected us, our teams have
pre-empted this scenario and as a result, confidence in our products is seen. Sales have
been aggressive, prices competitive, and we have responded to market demands,” he
says.
As an example, Syed Hisham notes that Toyota’s new Vios model had managed to secure
more than 16,000 bookings as a result of strong demand ahead of the official launch in
October.
For the quarter ended Sept 30, UMW recorded a net profit of RM101.45 million or 8.68
sen per share from RM299.12 million a year earlier, on the back of RM3.45 billion in
revenue.