News  In a Bursa announcement, UMW Holdings (UMW) announced a proposal to dispose off its leasehold land measuring in total 118.56 acres (5.164m sq ft) to Perodua Sales Sdn Bhd (PSSB) for a total cash consideration of RM49.1m (RM9.50/sq ft).

 The leasehold land which is located at Bandar Serendah, Negeri Selangor carries a book value of RM27.6m and is valued 5.5% above the highest valuation of RM46.5m as conducted by independent valuers.

 According to the announcement, the expected gain from the proposed disposal is at c.RM29.6m and the sale proceeds will be utilised for working capital purposes.

Comments  We believe that the valuation of the deal at RM9.50/sq ft is fair as it is comparable to the market valuation of RM10-RM22, based on our online channel checks.

 We are MILDLY POSITIVE on the deal as the proceeds from the land disposal (of which UMW has no plan for development) will only bring minimal interest savings to the group. In addition, the RM49.1m cash proceeds will strengthen UMW’s balance sheet with its net gearing expected to decline marginally to 0.20x (from 0.21x currently)

Outlook  While we expect sales outlook for Toyota in 2014 to be better than 2013, likely to be supported by new Vios sales, we expect higher selling and distribution expenses going forward arising from the group aggressive A&P and discount activities to tackle the intense competition which could lead to continual margin compressions.

 On the flipside, the performance of the Oil & Gas segment is expected to continue to improve in the subsequent quarters with 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 and potentially other jack up rigs.

Forecast  We raise our FY13E net profit (NP) by 3% to reflect the RM29.6m one-off gains while maintaining our FY13E core NP. Our FY14E core NP is increased by 1% due to interest savings.

Rating MAINTAIN MARKET PERFORM

Valuation  Our TP of RM13.16 is based on a SoP valuation (implies 15.5x FY14 PER) remain unchanged due to the minimal impact.

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

Source: Kenanga