UMW Land president Dr Wafi Nazrin Abdul Hamid (pic) said this was a 30-year contract to produce fan-casing for Rolls Royce engines.
KUALA LUMPUR: CIMB Equities Research is maintaining its Reduce rating on UMW Holdings with a higher RM4.90 target price (TP) of RM4.90 compared with its earlier RM4.38.
However, the revised TP (compared with the last closing price of RM5.75) is based on a higher 14.3 times CY18F P/E -- 10% premium to its five-year (FY09-FY14's) historical mean of 13 times, prior to its loss-making in 2015.
The research house said on Tuesday this was in view of the stronger earnings outlook and reduced drag from risky oil and gas assets.
“Key upside risks are accelerated disposal of non-listed oil and gas assets, and stronger earnings contribution from automotive. Switch to Bermaz for exposure to the Malaysian auto sector,” it said.
To recap, CIMB Research pointed out that in 1H17, UMW posted a wider core net loss of RM73mil (excludes the RM127mil loss from the demerger of UMW Oil & Gas, UMW-OG) versus RM26mil in 1H16 due to lower contribution from all four divisions – automotive, oil & gas, equipment, and manufacturing and engineering (M&E).
“If the calculation of core earnings also excludes the discontinued operations of UMW-OG, the group recorded a higher core earnings of RM138mil in 1H17 vs. RM73mil in 1H16,” it said.
CIMB Research pointed out Toyota sales volume surged 23.5% on-year in 1H17 on the back new model launches such as the all-new Innova and facelift models of Toyota Vios, Camry and Corolla Altis in 4Q16.
Meanwhile, its associate, Perusahaan Otomobil Kedua (Perodua) also posted decent 2.5% volume growth to 99,759 units in 1H17, driven by its latest two new models, Axia and Bezza.
In spite of the higher sales volume, pretax profit from automotive fell 13.9% on-year in 1H17 due to margin erosion from high import costs amid currency volatility.
Revenue from non-listed oil & gas assets dropped 29.1% on-year in 1H17 due to weaker demand from oil & gas players amid lower crude oil prices. As a result of lower operating activities, the O&G division posted a wider pretax loss of RM85.7mil vs. RM80.8 mil in 1H16. It also incurred expense on the cessation of drilling operations in Oman in 2Q17.
UMW has completed the distribution of its shares in UMW-OG to UMW shareholders in July 2017. UMW will no longer consolidate the financial performance of UMW-OG.
“Hence, we tweak our FY17-19 EPS forecasts as we remove the earnings contribution from UMW-OG entirely from FY17F onwards.
“UMW aims to progressively dispose of its non-listed oil and gas assets; management expects the exercise to be concluded by 2018.
“We see limited upside to UMW’s share price given that the stock is up 42% year-to-date as the potential earnings recovery from the oil & gas asset disposals is already reflected in its share price.
“Also, we now expect 28% EPS growth in FY18F, mainly from non-listed oil & gas asset and stronger earnings from associates,” it said.
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