Period  3Q13/9M13

Actual vs. Expectations Below expectations. The group reported 3Q13 PATAMI of RM101.5m, taking its 9M13 PATAMI to RM572.1m which only made up 58% and 57% of our and consensus full year estimates, respectively. The key negative deviations were lower-than-expected sales of Toyota vehicles coupled with higher selling and distribution expenses.

Dividends  Surprisingly, a special interim single-tier dividend of 10.0 sen per share coupled with a second interim single-tier dividend of 15.0 sen was declared. This raises its YTD DPS to 35.0 sen which implies a net dividend yield of 2.8%.

Key Results Highlights YoY, 9M13 revenue declined by 12% due to lower revenue contributions across the Automotive, Oil & Gas and Equipment segments. Meanwhile at the EBIT level, margin dropped by 2.7ppts to 9.7% dragged down by higher selling and distribution expenses amidst aggressive advertising and promotional (A&P) activities in the Automotive segment, thus sending EBIT lower by 32%.

 QoQ, 3Q13 revenue came in marginally lower by 1% as the higher turnaround in Oil & Gas segment (+22% mainly underpinned by the full quarter contribution from NAGA 4 and higher charter rate for NAGA 2) was offset by lower sales of Toyota vehicle and heavy equipment. Meanwhile at the EBIT level, margin halved to 5.4%, dragged down by higher operating expenses in Oil & Gas segment as well as Automotive segment, thus sending EBIT lower by 55%.

 Automotive: 9M revenue declined by 13% due to the lower Toyota sales volume (-17%) in the absence of new models being launched coupled with Vios model run-out, which offset the higher Perodua sales which grew 4%. Coupled with the higher selling and distribution expenses amidst the aggressive A&P activities, PBT declined by 18%.

 Equipment: 9M13 revenue weakened by 22% 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 increased by 7% on the back of better margin and higher fair value gain on derivatives.

 Oil & gas: 9M13 revenue fell by 11% due to the expiration of a semi-submersible rig contract for Hakuryu 5 in January 2013 and lower trading income. Nonetheless, PBT soared by 112% underpinned by: (i) new contribution from NAGA 4, (ii) higher contribution from NAGA 1, and (iii) recognition of gain upon completion of sale of property (c.RM30m).

 M&E: 9M13’s revenue improved by 8% due to the higher demand for its lubricant products. Note that the segment recorded a LBT of RM24m caused by the impairment of assets.

Outlook  For the 9M13, UMW Toyota only managed to sell a total of 64,929 units of vehicles (including Lexus) due to more aggressive launches by its competitors as well as the absence of new models. If we were to annualise the YTD September figure with +9k new Toyota Vios sales in 4Q (at c.96k), this could came in line with our FY13 assumption of 95k units. Although we reckon that the 4Q sales will be boosted by the new Toyota Vios that was launched some time in September this year, the significant positive impact will not be seen in FY13 given that delivery will likely spill over to 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  We maintain our FY13 and FY14 forecasts for now pending further details from the briefing this coming Monday.

Rating Maintain MARKET PERFORM

Valuation  We are keeping our TP of RM13.39 (which is based on a targeted PER multiple of 14.4x, at +1SD above its 5-year average forward PER) unchanged for now.

Risks to Our Call  Lower-than-expected vehicle sales.

Source: Kenanga