UMW HOLDING - New Camry underpins earnings revision cycle

- We re-affirm our high conviction BUY on UMW at a higher fair value of RM10.00/share (from RM8.90/share) following earnings revision in this report. Our SOP-derived fair value now pegs UMW auto at 13x FY12F earnings (from 12x), closer to mid-cycle valuation to reflect strong traction in auto earnings and record earnings achievement this year.

- We raise our earnings projections by 4%-6% over FY12F-14F to reflect stronger than expected take-up of UMW Toyota’s newly launched Camry. Our projections now model in 12,164 total Camry sales this year versus 8,922 units previously (FY12F). Strong take-up of the new Camry further underpins UMW’s earnings revision cycle – our forecasts are now 5%-6% higher than consensus over FY12F-14F. 

- As a recap, the new Camry (which is now locally assembled at UMW’s Shah Alam plant) was launched on 1^st  June. The model is offered in 3 different variants – two 2 litre variants and one 2.5 litre variant.

- Our chat with management indicates that the Camry has managed to garner bookings of over 2,000 units. Recall that management’s sales target for the new Camry is up to 18,000 units/annum (1,500 units/month), which is a 133% increase vs. 2011 Camry sales of an average 645 units/month. Actual booking of 2,000 units is 33% higher than the already bullish management projection, notwithstanding exceptionally strong take-up for new models in the first 3 months of launch. 

- More importantly, the strong bookings came about despite minimal changes in pricing. The new Camry is priced between RM149,900-180,900 compared to RM144,990-174,990 for the CBU imported 4^th  Gen model. 

- This means that the volume boost from the new Camry will be accompanied by strong margin improvement - at 40% localisation rate, UMW realises estimated duty/tax  cost savings of RM20,000-30,000/unit. As the Camry was launched in June, and meaningful numbers are only expected to pour in from July, 2H12 earnings will see significant earnings gap-up from UMW’s auto division 

- UMW autos still contributes to the bulk of earnings (FY12F: ~80% of group earnings) and implied valuation of 11x FY12F earnings seems to undermine UMW’s earnings potential this year – mid cycle PE: 14x. Furthermore, O&G division is recovering strongly and UMW is positioned as one of potential proxies to Petronas’ marginal field development. Key catalysts: (1) Consensus earnings revision – our forecasts are 5%-6% above consensus; (2) Potential M&As in the auto sector; (3) Expansion of rig fleet via acquisition and increased newsflows on marginal field development.

Source: AmeSecurities