UMW's 1QFY12 core earnings came in line with our and consensus expectations, thanks to positive profit growth from autos, equipments and oil & gas division, though manufacturing only broke even due to start-up losses. Management remains positive on the outlook and we expect earnings from the remaining quarters to be strong on the back of higher vehicle sales, with the new Camry to be unveiled in June, and strong earnings momentum from oil & gas. We are upgrading our forecasts by 6% and 10% for FY12 and FY13 respectively. This consequently lifts our FV on UMW to RM9.55, reaffirming our BUY call since Feb.
Boosted by autos and equipments. UMW's 1QFY12 core earnings came in at RM185.2m, down 12.6% q-o-q, due to seasonality as vehicle sales declined by 3.5% but higher by 12% y-o-y, thanks to the to the higher combined sales (y-o-y: 14.7%. q-o-q: 6.3%) of both autos and equipments. Accounting for 22% and 24% of our and consensus full-year forecasts, 1QFY12 earnings are deemed in line and the same goes for revenue. Autos and equipments were the key profit contributors as the former benefited from higher localization (notably from Perodua's new Myvi) and the latter seeing more orders from Myanmar and the rescheduling of deliveries from 4QFY11.
Oil and gas yet to make a comeback and manufacturing breaks even. Even with the sizeable reversal of impairments for the oil and gas division, it has yet to make a significant return to profitability due to continued losses by some of its associates. For 1Q, the division reported earnings of RM24m and a core net profit of RM5.18m due to some lumpy reversals estimated at RM18m. However, on the positive note, earnings for the ensuing quarters would likely be stronger, given the 15% charter rate hike for its Naga 3 drilling rig and narrowing losses from its associates. The manufacturing division broke even, thanks to the higher utilization rate achieved by its overseas start-up part business units, although the top-line was weaker on the back of lower ASPs owing to the change in power steering from hydraulic to electric for Perodua's new Myvi model.
Margins flattish. While its auto division achieved improved efficiency, the overall EBITDA margin came in flat y-o-y as it was weighed down by the lower-than-expected earnings from its oil and gas division.
Upgrade earnings and FV. Despite earnings coming just in-line, we are upgrading our forecasts by 6% and 10% for FY12 and FY13 respectively on the back of a revenue increase of 1.5% for 2012 (0% for 2013). This is due to stronger-than-expected sales coming from its equipment side and improved margin for its auto business. Following the adjustment in earnings, we lift our FV on UMW to RM9.55 (27% potential upside inclusive of its net dividend yield of 5%). We reaffirm our BUY call on UMW.