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Saturday June 9, 2012

UMW’s next engine of growth

ARMED with a war chest of RM2.25bil, conglomerate UMW Holdings Bhd is planning to shop around for opportunities to expand its business and sees its oil and gas division as the next engine of growth, while its automotive business remains its main revenue contributor.

President and group CEO Datuk Syed Hisham Syed Wazir tells StarBizWeek that the company may invest further in the oil and gas sector later this year to take advantage of the various opportunities in the industry with a focus on providing exploration and drilling services.

“We continue to see opportunities locally with Petronas leading shallow water explorations in the country. There is big potential for us here, as Petronas is encouraging interested parties to participate in marginal oilfield activities and this bodes well for our goal to provide services beyond Malaysia and to the Asean region,” he says.

Having just erased previous losses from its oil and gas division by recording RM29.9mil pre-tax profit for its first quarter of 2012, the company is bullish about the prospects of the oil and gas sector with its semi-submersible rig Naga 1, and jack-up drilling rigs Naga 2 and Naga 3 on full operation.

The pre-tax profit from its oil and gas division in the first quarter more than doubled that of the previous corresponding period, with additional full quarter contributions from Naga 3 and Hakuryu 5, coupled with higher revenue from oilfield products and services.

Syed Hisham with UMW’s semi-submersible rig Naga 1 model. He says Petronas encouraging companies to participate in marginal oilfield activities bodes well for UMW’s goal to provide services beyond Malaysia.

Hakuryu 5 is a semi-submersible drilling rig that is wholly-owned by Japan Drilling Co Ltd (JDC). UMW has an existing US$72mil per year bare-boat charter with JDC for the rig under Petronas Carigali Sdn Bhd's drilling programme.

The group was forced to make an impairment loss provision for WSP Holdings Ltd, which was among the factors for the group's oil and gas division suffering a RM191mil pre-tax loss in the financial year ended Dec 31, 2011.

China-based WSP is a 22.3% associate of the group, and has been affected by anti-dumping and countervailing duties imposed by the United States on oil country tubular goods produced in China.

Since then, private equity HDS Investments LLC had proposed to acquire WSP at 60 US cent (RM1.80) per share with the intention of taking it private. UMW is currently in discussion on the proposed privatisation.

This year, the company is set to rake in full-year revenue contribution from Naga 3, coupled with a 15% increase in day-rate with effect from the second quarter.

In March, its Naga 3 jack-up drilling rig also received a two-year contract extension from Petronas Carigali for US$105mil.

While automotive remains its core business, not many are aware that for every two cars sold in Malaysia, one car is most probably affiliated to UMW with its 48.5% market share domination of the local passenger cars market.

Leading volume seller

UMW manufactures and markets Toyota vehicles and Lexus vehicles via UMW Toyota Motor Sdn Bhd and is also the single largest shareholder of Perusahaan Otomobil Kedua Sdn Bhd, the leading volume seller in the country. It sold 67,635 units of vehicles combined for the first quarter 2012, about half of the 138,500 total industry volume.

While Bank Negara's responsible lending guidelines has impacted the sales of Perodua's Viva model, there was minimal impact on sales of Toyota and Lexus vehicles, particularly Lexus which sold 352 units in first quarter 2012, double from the 172 units recorded in the previous corresponding period owing to the tax incentives for hybrid vehicles.

“We have overlapped several growth plans, and there's room for improvement. The challenge is to review and consolidate the business and to focus on bringing it to the next level through many activities including reorganising our corporate structure,” he says.

“We certainly want to improve the company's bottom line and also raise our market capitalisation, and this would be done via the expansion of business, be it by acquiring or through organic growth in areas we are strong in,” he says.

“Moving forward, I know I must move the group's dependence on the automotive businesses to other divisions like equipment, oil and gas and manufacturing and engineering. That is why we reorganised, and aim to bring our non-auto portfolio to a much higher level, which is part of our five-year business plan,” he says.

“UMW is on a different level and magnitude financially compared with other companies I've helmed. Here it is so much bigger and having operations in 13 countries with countless partners and brands is no joke.” he says.

The company has allocated RM620mil as capital expenditure for 2012, and is on track to upgrade its facilities, renew old stock and revitalise the group's operational network and distribution centres.

Its equipment division, which holds the Komatsu heavy machinery franchise in Malaysia, Singapore, Papua New Guinea and Myanmar, is also expected to have another good year with strong activities in the various sectors.

“Our equipment business has been encouraged by the government's initiative to increase construction activity through projects in the Economic Transformation Programme. Infrastructure projects are a catalyst for heavy equipment sales and because of our reputation, we have become a preferred choice for the market,” he says.

Last year the group achieved a net profit of RM502.98mil over a revenue of RM13.5bil and had paid 31 sen per share as dividend, or 72.7% of its net profit.

For its first quarter ended March 31, 2012, it recorded a higher net profit of RM220mil from revenue of RM3.69bil, compared with a net profit of RM151.8mil and revenue of RM3.22bil in the previous corresponding quarter.

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