- Local dailies and Bloomberg today highlighted an interview
with UMW CEO, Datuk Syed Hisham Syed Wazir. Key takeaways from the interview
are:- (1) Management expects FY12F profits to increase, driven by stronger auto
sales; (2) Earnings expected to rebound at its oil & gas division which is
recovering after two years of losses; (3) Management is confident of surpassing
its initial 93,000 unit sales target for UMW Toyota in FY12.
- The abovementioned views underpin our expectation of a
multi-year record earnings streak for UMW – reflected in FY11-FY14F earnings
CAGR of 21%. We re-affirm our FY12F net profit of RM888mil (+52% YoY), which
will be the group’s highest ever earnings, on strong auto recovery (off two
natural disasters in 2011 and tighter banking policies since Jan 2012) as well
as oil & gas division turnaround into profits.
- We project a 14% growth in FY12F auto earnings – driven by
an 11% growth in Toyota sales to 96,965 units. Toyota accounts for 74% of UMW
auto’s earnings, which in turn, account for over 72% of group bottomline.
Recall that management has revised up its target sales to 96,000 units (vs.
earlier target of 93,000), now much closer to our forecast. More importantly,
management highlighted that the new forecast is still very conservative and we
see room for significant upside. 1H12 Toyota sales of 51,567 already account
for 54% of the revised target.
- UMW is also at the cusp of the oil & gas division
recovery, building up momentum on FY charter contributions from Naga 2 and Naga
3 jack-up rigs, new rig acquisitions this year and potential marginal field
contract wins. Our FY12F O&G projections are still very conservative at
RM50mil net profit vs. 1Q12 O&G earnings of RM20mil (annualised: RM80mil).
This compares to a RM216mil net loss in FY11.
- At FY12F PE of 13x, UMW is looking attractive (11%
discount), relative to a mid-cycle PE of 14x given a strengthening earnings
cycle. Additionally, UMW provides cheap
access as an O&G asset owner & operator – as a comparison, Bumi Armada
is trading at 24x CY12F earnings. As a valuation yardstick, UMW traded up to a
high of 17x in 2010 when earnings recovered from the economic crisis in 2009. A
solid balance sheet (23% net gearing postrig acquisition) positions the group
well to capitalise on M&A opportunities in the auto sector, should it
arise. Re-affirm our BUY call at an unchanged SOP-derived fair value of RM11/share.
Source: AmeSecurities
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