Affin downgrades UMW earnings, TP, maintains 'sell' call

Business & Markets 2013
Written by Jonathan Gan of theedgemalaysia.com
Friday, 06 December 2013 10:50
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KUALA LUMPUR (Dec 6): Affin Investment Bank has downgraded its earnings
foreast for UMW Holdings Bhd and target price (TP) for shares of the firm. The
downgrades come on lower vehicle sales estimates for the distributor of Toyota
cars in Malaysia.
In a note today, Affin however said it maintained its "reduce" rating for UMW
shares with a TP of RM11.35 from RM12.
Affin said the automotive segment is expected to face headwinds as a result of
intense competition from Japanese, South Korean and European marques
besides crimped consumer discretionary spending due to higher cost of living.
Affin said "we have cut our overall FY14-15 unit sales assumption by 6% and
8%, respectively. We now expect Toyota to achieve 95K (+9% yoy) and 99K
(+4% yoy)
unit sales for FY14 and FY15, respectively.
"This reflects the intensifying competition within the mid-range passenger car
market. As a result, we trim our FY14-15 EPS forecast by 2.5% and 7.4%,
respectively".
UMW's financial year ends on December 31
Its oil and gas (O&G) unit is, however, expected to support the company's profit
and mitigate the impact of lower vehicle sales.
Affin said the O&G unit is anticipated to help UMW grow its net profit to the
RM1 bllion level by FY15.
“UMW is expected to achieve a RM1 billion core net profit by FY15. We project a 3 year (FY12-15) modest earnings CAGR (compounded
annual growth rate) of 3% against a high base in FY12.
"Despite the recent pullback in share price, we opine valuations are still unwarranted as we see the group moving into a period of
operational consolidation – suggesting little scope for earnings upside over the next twelve months, Affin said.
The research house projects UMW's net dividends at 60 sen to 65 sen within FY14 and FY15 based on a 70% payout assumption.