Period  2Q13/1H13

Actual vs. Expectations  The group reported 2Q13 net profit (NP) of RM251m, bringing its 1H13 NP to RM470.7m. The result came in below expectations, making up 45% and 44% of our and consensus full year estimates respectively. The key negative deviations were: (i) lower sale of Toyota vehicles in the absence of new models being introduced in the 1H13, (ii) the expiration of a semi-submersible rig contract for Hakuryu 5 in January 2013; and (iii) slower construction sector which dragged down the Equipment segment.

Dividends  As expected, an interim single-tier dividend of 10.0 sen was declared under the quarter reviewed.

Key Results Highlights  YoY, 1H13 revenue declined by 12% due to lower revenue contributions across the Automotive, Oil & Gas and Equipment segments. As a result, EBIT dipped by 12% with an unchanged EBIT margin of 11.8%.

 QoQ, 2Q13 revenue improved by 4% mainly on the back of higher sales of Toyota and Perodua vehicles (+9.8% and 6.2% respectively) coupled with the higher contribution from NAGA 1 and NAGA 4 in the Oil & Gas segment. Consequently, with slightly improved EBIT margin seen at 11.9% (1Q: 11.8%), EBIT climbed by 5%.

 Automotive: 1H revenue declined by 10% as the lower Toyota sales volume (-15%) due to the absence of new models being launched coupled with the stiff competition from other car makers offset the higher Perodua sales which grew 4%. Together with the lower operational efficiency, PBTdeclined by 15.7%.

 Equipment: 1H revenue weakened by 21% mainly due to the lower demand caused by softer construction sector coupled with the drop in palm oil, iron ore and gold-mining activities amidst the lower commodity prices. Despite the lower revenue, the PBT inched up by 0.2% on the back of lower operating expenses.

 Oil and gas: 1H revenue fell by 24% due to the expiration of a semi-submersible rig contract for Hakuryu 5 in January 2013. Nonetheless, PBT soared by 69% underpinned by: (i) new contribution from NAGA 4, (ii) lower repairs and maintenance cost following the completion of Deepdish project for NAGA 1; and (iii) completion of sale of property.

 M&E: 1H revenue and PBT increased by 9% and 64% respectively due to the higher demand for the its lubricant products. Note that the segment recorded a LBT of RM3m in 2Q13 despite higher revenue growth of 6% QoQ. This was due to the weakening of the Indian Rupee which resulted in an unrealised forex loss on its USD loans.

Outlook  In the 1H, UMW Toyota only managed to sell a total of 44,263 units of vehicles (including Lexus) due to more aggressive launches by its competitors. If we were to annualise the YTD June figure (at c.90k), this could be a tad below of our FY13 assumption of 100k units. Although we reckon that the 2H sales will be helped by new Toyota Vios that will be launched some time in September this year, the significant positive impact will not be seen in FY13 given delivery timing which may spill over into next year.

 On the flipside, the performance of the Oil & Gas segment is expected to continue to improve in subsequent quarters following full contribution from the refurbished NAGA 1, a higher daily operating rate for NAGA 2, continuing contracts for NAGA 3 and additional contribution from the new NAGA 4.

Change to Forecasts  Post-results, we lowered our FY13-FY14 earnings estimates by 6-7% after revising our Toyota vehicles sales forecast from 100k to 95k in light of the stiff competition and weak YTD sales.

Rating   Maintain MARKET PERFORM

Valuation  Following the earnings revision, our TP has been reduced to RM13.39 (from RM14.07) based on a 14.4x FY14 EPS (being the +1SD above the 5-year average forward PER) Risks  Lower than expected vehicle sales.

Source: Kenanga