Results

In Line – Reported core net profit of RM222.3m in 4Q13 and RM864.6m in FY13, close to HLIB’s RM866.1m (99.8%) and consensus RM908.7m (95.1%) forecasts.

Deviations

None.

Dividends

Announced final single tier dividend of 9 sen/share. YTD announced dividend of 44 sen, lower than our estimates of 55 sen.

Highlights

Automotive: FY13 revenue dropped by 10.9% yoy on lower sales volume of Toyota and Lexus (coupled with higher selling and distributional costs) contributing to lower net profit, but partly offset by higher contribution of associate Perodua sales. The group has set target to sell 295.4k units collectively in 2014 (+2.36% yoy), mainly from full year contribution of new Vios and new Altis launch.

Equipment: FY13 revenue dropped 20.3% yoy on lower demand for equipment from the construction and mining sectors. However PBT improved on better margins. FY14 is expected to remain challenging, given tighter lending and higher RPGT in Malaysia.

Oil & Gas: FY14 revenue improved substantially from new contributions of Naga 4, and higher contributions of Naga 1 and 2. UMWOG was successfully listed back in Nov 2013 and UMW only own 55.1% of UMWOG (vs. 100% ownership per IPO). Despite the expected stronger earnings, UMW can only recognize 55.1% of the earnings moving forward.

Manufacturing & Engineering: FY13 revenue improved marginally by 5.0% yoy on higher demand for lubricant and automotive components. However, PATMI was substantially affected by the depreciation of India Rupee. UMW expects operational turnaround in 2014 from higher demand for its products in India and China.

Others: UMW suffered impairment losses of RM112.8m related to its investments in India and derivative losses of RM128.5m in FY13.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Global automotive supply chain disruption.

Forecasts

Unchanged, pending analyst briefing on 27 Feb 2014.

Rating

Hold

Positives – 1) Control largest market share of Malaysia TIV with leading brand - Toyota, Lexus and Perodua; 2) Strong growth of Oil & Gas division; and 3) Expanding reach of Manufacturing & Engineering division into fast growing China and India.

Negatives – 1) High crude oil prices affecting margins of its oil based products i.e. lubricants; 2) Tightening of bank’s lending rules; and 3) Intense competition from rival automotive marques.

Valuation

Maintained Hold with unchanged Target Price of RM12.40 based on SOP, pending analyst briefing later today.

Source: Hong Leong Investment Bank Research - 27 Feb 2014