by Venu Puthankattil,
KUCHING: UMW Holdings Bhd (UMW) has been given a strong bullish outlook for the financial year 2012 (FY12) moving forward as its automotive division is expected to gain market share and its heavy equipment division can potentially benefit from local and regional contract awards.
TA Securities Holdings Bhd (TA Securities) senior research analyst James Ratnam noted in a research report, “We expect UMW’s 2012 vehicle sales to outperform the industry, implying a steady rise in market share ahead (12.2 per cent).
“Two key factors that will drive growth are new launches (Avanza, Lexus GS, Prius and Camry in June 2012) and the normalisation of supply chain after the substantial bottleneck experienced last year.
“We see strong brand equity in both national and non-national car segments boosting earnings ahead, despite the negative TIV (total industry volume) outlook,” he opined.
For the first two months of the year, vehicle sales rose 3.4 per cent year-on-year (y-o-y) to approximately 12,500 units.
He expected strong sales in March as well (eight to 10 per cent y-o-y) underpinned by solid take-up for its core models such as Vios, Avanza and Hilux (pent-up demand from the supply chain bottleneck last year) in the commercial segment.
Despite the analyst’s earlier pessimism on the impact of tighter hire purchase loans guidelines on the compact car segment, Perodua had performed well, with a y-o-y increase of 3.9 per cent in February.
Toyota’s Prius saw 400 units being sold in March and the group was said to be confident of achieving 4,000 units sale in FY12.
Meanwhile, he maintained a ‘rosy outlook’ for UMW’s heavy equipment division while stating, “Already a strong brand (Komatsu) in Malaysia with 30 per cent market share and naturally, it would benefit from the execution of Economic Transformation Programme projects as well as recurring income from logging and plantation sectors.
“Going forward, UMW could be one of the Malaysian beneficiaries of the political reform in Myanmar. The group has been doing business in Myanmar for over 10 years now supplying equipments for construction and the jade mining industry. In 2011, UMW secured a RM300 million contract to supply 250 units of Komatsu mining equipment in Myanmar.”
The group believed the booming construction sector would translate into contracts flow in the second half of FY12. On the long term, potential lifting of economic sanction could boost demand for equipments in the under-invested jade mining sector.
In the oil and gas (O&G) segment, higher utilisation of plants, reduced losses at WSP Holdings Ltd (WSP) and contribution from the extended Naga 3 contract with a higher value (US$105 million for 24 months) would help to boost core operating profit by more than three times, he estimated.
The analyst raised FY12 and FY13 earnings forecasts by 6.9 per cent and 4.8 per cent respectively on the back of more positive outlook across all business segments, particularly the auto segment.
He also expected ‘clean’ earnings from other core businesses to boost FY12/13 profits. The earnings forecasts were some six to eight per cent above consensus expectations, underpinning TA Securities’ bullish outlook on the group.
The earnings forecast revisions were on the back of the increase in the price earnings ratios of the automotive division (12 times from 10 times) as well as the equipment and mechanical and electrical division (10 times from eight times).
This also translated to increased gross dividend per share forecasts of 37 sen and 42 sen for FY12 and FY13 respectively, from 34 sen and 39 sen previously.
He raised the group’s target price to RM8.54 per share (from RM7.01 per share previously) using a sum-of-parts derivation approach, while noting key risk factors to the forecast as being the weak economy negatively impacting TIV, provisions in the O&G segment and a weak ringgit.
Read more: http://www.theborneopost.com/2012/04/19/umw-to-see-overall-bullish-year-analyst/#ixzz1sSriTUDw