- We re-affirm our high conviction BUY on UMW, with a higher
fair value of RM13.20/share (vs. RM12.70/share previously) following UMW’s results
briefing yesterday. We have raised earnings by 3%-7% over FY12F-14F to
reflect:- (1) higher Toyota sales volume assumptions; (2) Higher margin assumptions
for the auto division; (3) Lower tax rate.
- Two key reasons for the margin upside:- (1) Higher mix of
the higher margin CKD Camry – we now estimate the Camry to account for up
15%-18% of Toyota TIV over the forecast period; (2) Vios’ lower unit cost since
it is an end-of-life model, for which the bulk of value chain depreciation
would have been taken in the early years.
- Our new Toyota sales volume assumption of 101K-108K over FY12F-14F
(vs. 97K-104K previously) reflects the strong sales YTD, which on an annualised
basis stand at 101K. Key volume catalysts next year are:- (1) Launch of
the next generation Vios and Altis; (2)
Replacement cycle off 2008 record TIV base (See Chart 3).
- Management highlighted that Toyota and Perodua plants are running
at great efficiency, i.e. at >100% and 80% utilisation rate, respectively,
on our estimates. Toyota plant capacity currently stands at 70K/annum on 1.5
shifts but UMW is looking at increasing this to 90K/annum in FY13F via plant optimisation.
We suspect the increase in capacity is to accommodate the launch of the next
generation Vios, which is due for replacement.
- The oil & gas segment could see further prospects of earnings
expansion. UMW’s positioning as the only local jack-up rig owner-operator puts
it at the forefront for contract flows in Malaysia. Eight out of 15 jack-up rig
contracts in Malaysia are scheduled to reach expiry in 2013. Management does
not rule out further rig acquisitions to tap into this potential, as well as
opportunities in marginal field development.
- UMW’s valuation remains undemanding (at 11x FY13F earnings)
relative to historical levels (historical average PE of 14x) despite rapid
recovery in the O&G segment with prospects of further earnings expansion,
as well as the auto segment which is breaking record earnings on the back of new
model launches and improving margins.
- Furthermore, at a conservative payout ratio assumption of 50%
(in-line with management policy), implied dividend yield stands at 4.4%
(FY13F). Key catalysts:- (1) Earnings revisions; (2) New model launches, i.e.
Toyota Vios and Altis, Perodua Viva replacement; (3) 5-year replacement cycle,
off 2008 record Toyota TIV base; (4) Potential acquisitions in the auto and
O&G sectors (in its core oilfield services division) given a relatively
under-leveraged balance sheet (FY12F: 23% post
new rig acquisition of RM683mil).
Source: AmeSecurities
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