Period    3Q12 / 9M12

Actual vs. Expectations     UMW's 9M12 results came in above ours and the consensus expectations. The 9M12 net profit of RM743.4m accounted for 89% and 83% of ours and the street's FY12 full year estimates. The strong earnings were attributable to the turnaround of its oil and gas division and higher sales of vehicles.

Dividends   A dividend of 15 sen was declared. We are keeping our FY12 dividend forecast at 31.9 sen (40% dividend payout).

Key Results Highlights    YoY, the 9M12 revenue and net profit soared by 51% and 67% to RM11,799m and RM743.4m respectively. This was mainly due to a better performance across all the divisions. Its oil and gas division made a turnaround from a loss to a RM45m profit at the pre-tax level. Its automotive division pre-tax margin has also improved from 15% to 16% due to a favorable model mix and lower selling and distribution expenses.

 QoQ,  its 3Q12 net profit of RM299m increased by 33% despite a 4% drop in revenue. The decrease in the revenue was mainly due (1) the absence of NAGA-1 revenue contribution following the dry-docking procedure (2) lower demand for heavy equipments in India and (3) lower Toyota sales during the quarter as customers opted for wait-and-see stance prior to Budget 2013 announcement. However, the net profit grew by 33% due to lower distribution expenses recorded and the margin improvement in its oil & gas division.

Outlook   The O&G division is expected to contribute positively in FY13 as NAGA-1 will commence operation by December 2012 together with the other three rigs currently in operation. 

Change to Forecasts  We have raised our FY12-13 net profit estimates by 11.5% and 10.7% respectively as we had factored in a higher Toyota and Perodua's market shares.

Rating  Maintain OUTPERFORM

 We are maintaining our OUTPERFORM recommendation with a potential capital upside of 24%.  

Valuation    We have raised our Target Price by 11% from RM11.18 to RM12.37 based on an unchanged 14x FY13E PER.

Risks   Slower than expected growth in the auto sector and a global recession.  

Source: Kenanga