Monday 26 November 2012

UMW Holdings - Running Over Consensus Forecast


Having trumped consensus’ earnings forecast by 11%, UMW is on track to hit our FY12  estimated  profit  of  RM1bn,  which  is  the  highest  on  the  street.  All  divisions saw stronger earnings, with the oil and gas segment making a notable turnaround despite zero revenue from the Naga 1. We are upgrading our FY12-FY14 earnings estimates by 5%-6% on higher auto margin assumptions and better-than-expectednumbers  from  the  O&G  and  equipment  units.  Maintain  BUY,  with  a  revised RM12.45 FV, offering a 29% potential upside.  

Trumping street estimates. UMW again chalked up record earnings, with 3Q core net profit jumping 57% y-o-y and 3% q-o-q on revenueof RM3.96bn (+25% y-o-y, -4% q-o-q).  Its  9MFY12  earnings  of  RM739.7m  (YTD:  41%),  which  beat  consensus  forecast  by 11%  when  annualised,  are  on  track  to  hit  our  lofty  forecast  of  earnings  exceeding RM1bn.  The  strong  earnings  boosted the group’s dividend  payout  for  3Q,  for  which  it has declared a 15 sen dividend per share (9MFY12: 25 sen).

Autos,  equipment  stand  strong.  The  strong  3Q  results  were  largely  attributed  to  the 17% and 108% y-o-y growth in auto and equipment earnings respectively,  as well as a turnaround in the O&G segment, registering a RM42.5m profit YTD vs a RM35m loss for 9MFY11.  The  auto  division  benefited  from  the  6%  y-o-y  growth  in  vehicle  numbers  in 3Q,  albeit  this  was  seasonally  weaker  q-o-q. Meanwhile, Perodua’s 3Q earnings may have  surged  41%  y-o-y,  backed  by  a  45.9%  growth  in  vehicle  sales  (based  on  MBM Resources’  numbers),  likely  the  result  of  normalisation  with  regard  to  the  new  lending guidelines  and  improved  exports.  The  equipment  unit  continued  to  see  robust  heavy equipment  orders,  thanks  to  the  growing  construction  sector,  as  well  as  jade  mining activities  in  Myanmar.  The  manufacturing  division’s  PBT  improved  due  to  a  higher utilisation rate at UMW’s lubricant and automotive plants in China and India respectively.

O&G swings back to the black. UMW’s O&G division recorded earnings of  RM19.4m vs a loss of 16.9m in 3QFY11 (9MFY12: RM42.5m).  Its 3Q revenue grew 14.3% y-o-y, boosted  by  higher  charter  rates  and  revenue  contribution  from  its  rigs  despite  zero revenue  from  the  dry  docking  of  the  Naga  1.  Naga  1  is  expected  to  be  operational  in December, which should slightly improve the company’s 4Q earnings.
 
Upgrade  earnings.  Maintain  BUY.  We  upgrade  our  FY12-FY14  earnings  by  5%-6% based  on  our  higher  auto margin  assumptions  and  better-than-expected  numbers  from UMW’s O&G and equipment units. Our FV is revised higher to RM12.45, based on sum-of-parts. Maintain BUY. We are switching our top pick to UMW from Tan Chong in view of the former’s O&G  turnaround.  Similarly,  we  expect  consensus  to  upgrade  their earnings forecasts in view of the better-than-expected results.
Source: OSK

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