Wednesday August 8, 2012

UMW sees higher FY12 earnings

Group expects rebound in auto sales, improved oil and gas division

KUALA LUMPUR: UMW Holdings Bhd, Malaysia's biggest carmaker and assembler by market value, expects full-year profit to increase as auto sales climb and its oil and gas business rebounds from two years of losses. The shares rose to a record.

The company's oil and gas business would be profitable this year as its drilling rigs and the trading of oilfield products and services contributed to revenue, chief executive officer Datuk Syed Hisham Syed Wazir said.

In 2011, UMW's profit declined 4.7% to RM502.1mil, with the unit posting a RM229.6mil.

“The worst is over for the division,” Syed Hisham said in an interview, declining to give a more specific target for earnings this year.

“The scenario is very buoyant and opportunities are increasing.”

A file photo shows Syed Hisham looking at UMW’s semisubmersible rig Naga 1 model. The group’s oil and gas unit is expected to turn in a profit as it expands into the upstream business.

The profit gain may help extend its 42% rally this year, the second-biggest gain among South-East Asian automakers and assemblers and the most FTSE Bursa Malaysia KL Composite Index.

The improving outlook also drew foreign investors, who held 24% of the company in the second quarter from 16% in the previous three months, according to data compiled by UMW.

Shares of the assembler of Toyota Motor Corp cars have lagged behind the Malaysian index for the past three years. UMW fell 0.3% in 2011, compared with the benchmark measure's 0.8% advance.

The gains in the previous two years were also about half of the stock gauge.

UMW climbed as much as 1.1% to RM10, poised for a record close, before paring gains to RM9.92 at 9:42am yesterday.

The KLCI index rose 0.1%. Of the 16 analysts who track the stock, 10 rate it a “buy” while five have a “hold”, with one recommending investors to “sell”.

“UMW has been a laggard,” said Choo Swee Kee, chief investment officer at TA Investment Management Bhd, which manages about RM700mil including UMW shares.

“Even with this rise, the valuation is still reasonable compared with other index stocks,” he said, adding that the rally “is sustainable.”

UMW shares trade at 13.3 times estimated earnings, compared with the KLCI Index's multiple of 15.1, according to data compiled by Bloomberg.

The oil and gas unit was expected to turn in a profit as it expanded into the upstream business, Syed Hisham said, referring to exploration and production. The company was also seeking to ride on increased exploration activities by a state-run energy group, he said.

Revenue at the oil and gas unit more than doubled in the first quarter, helping to boost UMW's net income by 45%.

The group, which derived 72% of sales last year from manufacturing and assembling cars for Toyota, also increased market share in Malaysia's auto market in the first half of the year.

UMW's share in the country's passenger-car market rose to 48% at the end of June from 45% last year, Syed Hisham said, citing Malaysian Automotive Association's data.

“We remain upbeat on the stock as prospects continue to be promising for the company's auto division,” Ahmad Maghfur Usman, an analyst at OSK Holdings Bhd, wrote in a report.

“Moving forward, we also see UMW becoming a major upstream oil and gas player.”

He raised the stock's so-called fair value to RM12.07 from RM10.46, and kept his “high conviction buy” rating.

“Some people are quite positive on the sales of their automotive business,” Choo at TA Investment said. “A lot of interest is in the oil and gas business, where they have resolved some of the issues earlier on. This will drive the earnings growth in the oil and gas business.”

UMW, which also operates in countries including Australia, China and India, planned to sell shares in its oil and gas unit, Syed Hisham said, without giving a timeframe.

“It is still part of our plan,” he said. “After two years of losses, we need to show consistent profit. Prevailing market conditions will also determine the timing of the listing.”

UMW also distributes Lexus cars in the country. It holds a 38% stake as the single-largest shareholder of second national carmaker Perusahaan Otomobil Kedua Sdn Bhd.

The auto association forecast vehicle sales in the country to increase to 615,000 units this year from 600,123 last year.

“Our original sales target for the year is 93,000 units,” said Syed Hisham.

“With the continued strong demand, we are confident of achieving or surpassing our target.” - Bloomberg

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Wednesday August 8, 2012

UMW sees higher FY12 earnings