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PP 7767/09/2010(025354)

23 August 2010

Malaysia Corporate Highlights


RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
23 August 2010
MARKET DATELINE

UMW Holdings Share Price


Fair Value
:
:
RM6.43
RM7.27
Recom : Outperform
Maintaining Its Strong Hold in 2Q (Maintained)

Table 1 : Investment Statistics (UMW; Code: 4588) Bloomberg: UMWH MK


Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA EV/EBITDA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009a 10,697.9 371.1 33.6 (35.8) 18.4 1.9 7.1 10.2% Net Cash 3.2
2010f 10,670.5 621.9 55.3 64.4 11.6 48.6 1.8 5.2 15.3% Net Cash 3.7
2011f 11,062.4 672.1 59.2 7.2 10.9 55.0 1.6 5.0 14.8% Net Cash 3.8
2012f 11,982.5 752.1 66.3 11.9 9.7 60.0 1.4 4.8 14.8% Net Cash 4.0
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
RHBRI Vs. Consensus
♦ Results largely in line with our and above consensus full-year Above
expectations. 6MFY10 net profit of RM344.6m achieved 55% of our full- In Line
year estimates and 63.5% of consensus mainly due to the improved sales Below
of the automotive (+32.5%) and equipment (+29.9%) divisions.
♦ Yoy and qoq increase, still due to automotive segment. Revenue
Issued Capital (m shares)
Market Cap(RMm)
1,142.2
7,344.4
(+27.2%) and net profit (+166.5) growth were strong mainly due to the
Daily Trading Vol (m shs) 0.8
sustained demand for Toyota vehicles, especially the Vios. While the 52wk Price Range (RM) 5.90-6.69
popularity of the Perodua Myvi and Alza ensured high associate earnings Major Shareholders: (%)
(+204%). Favourable exchange rates and higher sales volume; that led to Skim ASB 45.1
economies of scale, resulted in an improvement in 2QFY10’s EBIT (+5ppts) EPF 16.6
and PBT (+6.3 ppts) margins to 12.1% and 13.5% respectively (versus KWAP 5.2
EBIT and PBT margins of 7% and 7.2% in 2QFY09).
FYE Dec FY09 FY10 FY11
♦ Outlook. For 2HFY10 UMW is confident that automotive sales will continue EPS chg (%) - - -
to be favourable as it rides on the better economic growth. However, Var to Cons (%) 13.7 7.7 10.5
despite Naga 2 being deployed (targeted in Sep) and a pick-up in output
PE Band Chart
levels in several of its Oil Country Tubular Goods (OCTG) plants, the oil
and gas division continues to see weakness ahead as antidumping and
PER = 16x
countervailing duties imposed by the United States continue to have an PER = 14x
PER = 12x
adverse effect on its exports to North America.
♦ Risks. 1) Lower-than-expected car sales from protracted downturn; 2)
Weakening of RM against US$ and Yen; and 3) Slower-than-expected
production ramp-up of O&G division.
♦ Forecasts. Our FY10-12 net profit estimates are maintained as results are
in line with our assumptions thus far. However, we revise our fair value Relative Performance To FBM KLCI
down to RM7.27 (previous RM7.50) as we decrease the oil and gas
division's contribution to FY11’s net profit to 10% and reduce its PER FBM KLCI

assumptions to 10x (versus previous 30% contribution and PER of 14x); as


we expect near term weakness to continue. We increase the contribution
from the automotive and heavy equipment divisions to 80% and 8%
UMW Holdings
(previously 56% and 5%) given the divisions’ strong performance.
♦ Investment case. UMW’s strong automotive and equipment divisions will
set the stage for the rest of FY10, while improving sentiment and
affordability on the back of the economic recovery will improve preference
towards its premium products in the future. Based on the factors above we Joshua CY Ng
reiterate our Outperform call on the stock at a fair value of RM7.27. (603) 9280 2239
joshuang@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2: Earnings Review


FYE Dec 2Q09 1Q10 2Q10 Qoq yoy 6M09 6M10 yoy Comments
(RMm) (%) (%) (%)
Revenue 2,581.1 3,033.2 3,282.1 8.2 27.2 4,930.9 6,315.2 28.1 Qoq was up mainly due to greater
sales in the automotive (+6.9%) and
equipment divisions (16.1%). Yoy
181.5 277.3 397.5 43.3 119.0 272.1 674.9 148.0 performance improved due to better
EBIT performance in all divisions except
for O&G.

(16.0) (11.4) (14.8) 30.7 (7.3) (26.2) (26.2) 0.2


Interest exp
7.4 8.6 10.5 22.5 42.5 16.3 19.1 17.4
Interest inc

Higher yoy and qoq on the back of


12.6 30.5 49.1 60.8 288.7 47.0 79.6 69.4
Associates sustained Perodua sales, especially
that of the Myvi and Alza.
Pretax 185.5 305.1 442.3 45.0 138.5 309.2 747.4 141.7
Taxation (42.1) (72.8) (99.3) 36.3 135.8 (67.7) (172.1) 154.4
Minorities 63.9 99.4 (131.3) (232.1) (305.4) 96.2 (31.9) (133.2)
Net profit 79.4 132.9 211.7 59.3 166.5 145.4 344.6 137.0

Margins (%): ppts ppts ppts


EBIT 7.0 9.1 12.1 3.0 5.1 5.5 10.7 5.2
Pretax 7.2 10.1 13.5 3.4 6.3 6.3 11.8 5.6
Net profit 3.1 4.4 6.5 2.1 3.4 2.9 5.5 2.5
Eff. Tax Rate 22.7 23.9 22.4 (1.4) (0.3) 21.9 23.0 1.1

Table 3: Earnings Review - Segmental Breakdown


FYE Dec 2Q09 1Q10 2Q10 qoq yoy 6M09 6M10 Yoy Comments
(RMm) (%) (%) (%)

Revenue

Automotive 2,023.9 2,398.3 2,563.8 6.9 26.7 3,745.1 4,962.1 32.5


Equipment 282.1 350.4 406.8 16.1 44.2 582.9 757.2 29.9 Higher qoq and yoy due to the
strengthening domestic and external
demand as well as improving
regional economic conditions
paticularly in the Asian region.
Oil & Gas 111.6 145.5 147.9 1.6 32.6 226.3 293.4 29.7
Mfg & Eng 170.3 142.4 167.1 17.3 (1.9) 387.4 309.5 (20.1)
Financial 13.4 18.2 19.9 9.0 48.6 29.3 38.1 30.3
Others (20.1) (21.7) (23.4) 7.9 16.1 (40.1) (45.0) 12.3
Revenue 2,581.1 3,033.2 3,282.1 8.2 27.2 4,930.9 6,315.2 28.1

PBT
127.8 319.1 400.2 25.4 213.1 201.2 719.3 257.6 Better yoy and qoq numbers due to:
1) higher sales volume, leading to
economies of scale; and
Automotive 2)favourable exchange rates
Equipment 22.6 27.3 42.5 55.6 87.9 45.4 69.8 53.8
19.0 (19.2) (19.3) (0.4) (201.5) 24.1 (38.6) (260.2) Yoy and qoq numbers down, mainly
due to antidumping and
countervailing duties imposed by the
United States that continue to have
an adverse effect on exports to
Oil & Gas North America.
Mfg & Eng 3.7 12.0 17.2 43.6 368.4 6.5 29.2 347.9

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Table 4: UMW unit vehicle sales


FYE Dec 2Q09 1Q10 2Q10 Qoq yoy 3M09 3M10 yoy
(units) (%) (%) (%)
Toyota 20,241 21,225 23,399 8.5 15.6 37,577.0 44,963.0 19.7
- Passenger 16,109 16,496 18,558 10.2 15.2 30,036.0 35,393.0 17.8
- Commercial 4,132 4,729 4,841 2.4 17.2 7,541.0 9,570.0 26.9

Perodua 38,656 47,751 47,185 (1.2) 22.1 77,046.0 94,936.0 23.2


- Passenger 38,655 47,751 47185 (1.2) 22.1 77,045.0 94,936.0 23.2
- Commercial 1 0 0 nm (100.0) 1.0 0.0 (100.0)

Total 58,897 68,976 70,584 2.3 19.8 114,623.0 139,560.0 21.8


Source: MAA

Table 5: UMW SOP Valuation


(RMm) Comments

Automotive 7,527.0 14x FY11 EPS

Heavy equipment 430.1 at 8x FY11 EPS


Manufacturing & 94.1 at 7x FY11 EPS
engineering
Oil & gas 672.1 At 10x FY11 EPS

Total 8,723.3

Add: cash 1,714.3


Less: debt (2,131.7)
Equity value 8,305.8

Issued shares (m) 1,142.2


Fair value (RM) 7.27
Source: RHBRI Estimates

Table 6. Earnings Forecasts Table 7. Forecast Assumptions


FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F F12F

Turnover 10,697.9 10,670.5 11,062.4 11,982.5 Toyota TIV (k units) 89.7 91.3 97.3
Turnover growth (%) 7.6 8.6 9.6 10.6 Perodua TIV (k units) 195.1 196.8 202.3
Forex (RM:100JPY)* 3.57 3.56 3.52
EBITDA 920.3 1,330.5 1,368.1 1,521.9 Forex (RM:US$)* 3.30 3.20 3.15
EBITDA margin (%) 8.6 12.5 12.4 12.7
*average rate
Depreciation (168.9) (175.4) (180.0) (184.8)
EBIT 751.4 1,155.1 1,188.1 1,337.1
EBIT margin (%) 7.0 10.8 10.7 11.2

Net Interest (5.2) (23.4) (16.8) (15.4)


Associates 88.4 342.3 377.3 403.3

Pretax Profit 834.6 1,474.1 1,548.6 1,725.0


Pretax margin (%) 7.8 13.8 14.0 14.4
Tax (198.0) (368.5) (387.2) (431.3)
Minorities (265.5) (483.7) (489.4) (541.6)
Net Profit 371.1 621.9 672.1 752.1
Net Profit margin (%) 3.5 5.8 6.1 6.3

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or

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strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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