UMW Holdings 3QFY08 : O&G growth still tepid
• 3Q08 results above expectations
For 3Q08, UMW recorded revenue of RM3.32bn (+20% y-o-y) and net profit of RM152.7m (+10% y-o-y). 9M08 revenue and net profit increased to RM9.88bn (+36% y-o-y) and RM446.2m (+37% y-o-y) respectively
largely on the back of higher vehicle sales. UMW’s results were above our expectations as 9M08 revenue came in at 92% of our annualized estimates, while net profit was 82%.
• Flat sequential growth
Despite recording higher sales of Toyota and Perodua vehicles of 71k units (+1k qoq), the Auto division’s 3Q08 revenue and EBIT experienced a marginal dip sequentially to RM2.59bn (-10% q-o-q) and RM265.4m (-9% q-o-q) respectively. 3Q08 EBIT margins were largely resilient at 10%. The Equipment division registered flat growth with 3Q08 revenue and EBIT of RM422.5m (-1% q-o-q) and RM39.3m. EBIT margins shrank to
30% in 3Q08 (2Q08: 33%).
• O&G earnings lagging behind
O&G earnings did not experience the turnaround we expected after a sedate 1H08 caused by the temporary decommissioning of NAGA 1 for refurbishment and upgrading works. Earnings from O&G should pick up
when NAGA 2 commence operations beginning Dec 1.
• 10 sen second interim gross dividend declared
UMW declared a second interim gross dividend of 10 sen/share, bringing total FY08 payout to 25 sen or 99% of our estimated FY08 payout. Based on UMW’s final dividend historical final dividend payout of 28 sen in
4QFY07, UMW is expected to pay at least 53 sen in total dividends in FY08, thus generating a gross dividend yield of 9.8%.
• Upgrade to BUY, target price revised to RM6.45
We have revised our earnings estimates upwards by 8%-11% for FY08-10 after imputing higher sales from the Equipment division and adjusting our assumptions of average selling prices for Toyota vehicles. We upgrade UMW from Hold to Buy, while our target price is revised upwards from RM6.10 to RM6.45 based on sum-of-parts valuation. However, the auto sector lacks catalysts despite a surprise jump in September vehicle sales of 7.3% m-o-m to 51k units. Key risk to our recommendation include lower than expected vehicle sales in view of a deteriorating economic outlook.