Results

In Line – Reported core net profit of RM229.9m in 1Q13, achieving 24.5% of HLIB’s F13 forecast and 21.4% of consensus.

Deviations

None.

Dividends

None.

Highlights

Automotive: 1Q13 revenue dropped by 9.1% yoy on lower sales of Toyota and Lexus, However, PBT was relatively flat yoy, thanks to higher contribution of Perodua, which benefits from the weakening JP¥.

Equipment: 1Q13 margin improved significantly on higher parts sales in Niugini and weakened JP¥, as ~50% of heavy equipments are sourced from Japan directly. Expect the division to report stronger earnings in coming quarters as JP¥ has further depreciated since March 2013.

Oil & Gas: A restatement to the account, as UMW recategorized its O&G division for the up-coming IPO by end 2013. Expect stronger earnings in 2013 due to start contribution of Naga 1 and 4, and higher charter rate for Naga 3. UMW has also announced another jack-up rig acquisition for US$223m. The rig (potentially to be named Naga 5) is expected to be delivered by May 2014.

Manufacturing & Engineering: 1Q13 earnings improved on higher sales volume of lubricants and automotive parts and components. The division is expected to improve further on lower oil fuel cost, higher plant utilization, and strong product demand.

Risks

• Weakening of RM.
• Slowdown in the Malaysian economy affecting car sales.
• Global automotive supply chain disruption.

Forecasts

Increased FY13-15 earnings by 2-6% after adjustments for the account restatement, new contribution from Naga5, weakened JP¥ and lower Toyota sales.

Rating

SELL

• Positives –
  • Control largest market share of Malaysia TIV with leading brand - Toyota, Lexus and Perodua.
  • Expansion of Oil & Gas division and listing by end 2013, as well as strong sales from Equipment division.
  • Expanding reach of Manufacturing & Engineering division into fast growing China and India.
• Negatives –
  • High crude oil prices affecting margins of its oil based products i.e. lubricants.
  • Competition in the automotive industry.

Valuation

• Maintained Sell with higher Target Price of RM13.00 (from Rm11.80) based on SOP, after earnings adjustments, and imputed higher FY14 P/E to Automotive segment at 13x (from 12x).

Source: Hong Leong Investment Bank Research - 27 May 2013