Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: MIDF

UMW Holdings Bhd
(Aug 23, RM6.51)
Maintain neutral at RM6.43 with revised target price of RM6.92 (from RM6.80): The group's 1H2010 numbers outperformed expectations with a net profit of RM344.6 million, accounting for 66% of full-year and also ahead of the street's estimate of RM542 million.

For 1H2010, the group's automotive revenue went up by 32.5% year-on-year (y-o-y) to RM4. 96 billion (1H2009: RM3.75 billion), while the equipment division's revenue increased by almost 30% y-o-y (RM757.2 million against RM582.9 million). The oil and gas division continued to experience a slowdown with revenue falling 24.2% y-o-y as business suffered from the lack of growth in demand.

1H2010 operating margin was at 10.7% against 5.2% recorded in the same period last year, and we expect this level to sustain for the remainder of this year on the back of (i) higher ringgit against US dollar that helped to push manufacturing costs lower, (ii) better economies from the ramp-up in production in the period.

Perodua and Toyota remain the market leaders in their respective segments. Perodua still the market leader in the country with market share at circa 33%, while Toyota continues to hold its position as the leading non-national brand. For 1H2010, Perodua sold 94,936 cars, a 23.2% growth y-o-y, while Toyota shifted 43,502 vehicles, marking an 18% increase y-o-y.

A potentially long wait for the O&G to recover. The overall prospect of earnings recovery remains in question but the signing of a new deal for Naga 2 could provide the catalyst needed to this division. There is still expectation of a better 2H2010 but overall sentiment remains cautious.

The main risk factor is the slump in sales due to the threat of rising interest rates that would put a damper on the overall sales target for this year.

The strong 2Q2010 automobile market is within expectations with long-term growth prospects from the O&G. Another catalyst would be the revival of the construction sector that will result in a stronger demand for heavy equipment.

We have increased our FY2010 and FY2011 EPS forecast by 26% and 8.5% respectively. Maintain 'neutral' with target price upped to RM6.92 based on DDM on the back of potentially higher dividend payout going forward. ' MIDF Research, Aug 23


This article appeared in The Edge Financial Daily, August 24 2010.