- We re-affirm our BUY rating on UMW following the release
of strong 3Q12 results. Our fair value of RM12.70/share is under review with an
upward bias, pending an analyst briefing this morning.
- UMW reported a net profit of RM299mil for 3Q12, bringing
9M12 earnings to RM743mil. This is ahead our expectations and consensus,
accounting for 83% and 82% of FY estimates, respectively. Our projections are
under review.
- Reasons for outperformance:- (1) Despite a 14% QoQ TIV contraction, the auto division’s margins
were stronger than expected, underpinned by a much higher mix of the new CKD Camry
(launched in June 2012) – we estimate the Camry now accounts for 15% of Toyota
TIV vs. 5% in 1H12; (2) Lower- thanexpected tax rate; (3) Recognition of
positive FV movement in OCTL (a quoted foreign investment) and forex gain on strengthening
of the Indian Rupee (estimated at RM20mil).
- Revenue contracted 4% QoQ on the back of a 14% Toyota TIV decline,
but earnings grew 33% QoQ, driven by the auto (reflecting maiden quarter of
contributions from the new Camry) and oil & gas divisions’ margin
improvement (1ppt and 6ppt qoq). O&G margins in 2Q12 were negatively
impacted by dry docking costs for Naga 1.
- Management guided that Toyota sales may exceed its
earlier, revised target of 97K for 2012. Strong Toyota TIV in recently reported
October industry sales numbers underpin this trajectory. Annualised YTD
(October) Toyota sales stand at 101K vs. our forecast of 97K. The launch of Nissan’s new Almera will dilute
some market share for the Vios, but the impact
is already partly reflected in 3Q12 as sales of existing models usually slow
down 3-4 months ahead of the entry of a new competing model.
- Underpinning UMW auto’s earnings upward trend is the new Camry
(full-year contribution in FY13F), which commands much higher margins
(10-15ppts higher) than a typical Bsegment like the Vios. Additionally, an
end-of-life model like the Vios commands good margins as the bulk of the value
chain depreciation has been taken in the early years of the launch. More
importantly, we expect the new generation Altis and Vios to be introduced in
2013, underpinning a strong (5-year) replacement cycle for Toyota, off a record
sales base of 101,629 units in 2008. Our 2013 projection has yet to factor in the
new Vios and Altis –103K (FY13F) unit sales vs. annualised YTD of 101K.
- 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: Kenanga
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