Period    2Q12/1H12

 The 1H12 net profit of RM444.3m came in within expectations, which made up 54% and 52% of ours and the consensus' full year estimates of RM832.6m and RM859.5m respectively.

Dividends   A single tier dividend of 10.0 sen was announced as expected.

 QoQ, the 2Q12 revenue of RM4.1b increased by 12% due to the stronger recovery in its automotive segment. The 2Q12 net profit of RM224.2 was 2% higher due to the normalising production of Toyota vehicles. Toyota and Perodua vehicles accounted for 46.3% of the total industry volume of 162,680 units in 2Q12. However, its oil & gas and equipment profit contributions were 95% lower due to dry-docking of NAGA-1 and lower demand for equipment and spare parts during the quarter.

 YoY, the 1H12 net profit of RM444.3m improved 57% on the back of its strong revenue growth of 23%. This was mainly due to the low base impact and positive recovery in the automotive segment. The contribution from its oil & gas division jumped by 67% driven by improving contribution from NAGA-3 jack up rig, sixmonth contribution from HAKURYU-5 semi-submersible rig and additional revenue from Garraf Power Plant Phase-1.   

Outlook   Moving forward, 2H12 remains vibrant for the group as we expect better sales on its automotive segment as the demand for its newly launched Perodua Myvi remains strong and there is a continuous improvement in loans processing lead time and approval success rate despite the strict lending guidelines imposed by Bank Negara Malaysia.

 Meanwhile, there is also a brighter outlook for its O&G division due to positive developments such as the increase in day rates for Naga 3 and with both of its Naga 2 & 3 operating at an efficiency rate of more than 95%.

 No changes to our FY12-13 forecasts.

Rating  Upgrade to OUTPERFORM

 We have upgraded UMW to an OUTPERFORM as expect upside surprise from its automotive and oil & gas divisions. 

Valuation    We have raised our Target Price from RM7.98 to RM11.17 based on 14x PER on its FY13 EPS (previously 10x). The higher implied PER is fair as it is within the 5-year average coupled with the positive recovery momentum for its automotive and oil & gas divisions. Risks   (1) Disruptions in production due to natural disaster (2) tightening in hire purchase regulation and (3) a steep drop in crude oil price