KUALA LUMPUR: Maybank Research rates UMW Holdings Bhd (UMWH) a 'buy' on news to rationalise non-core manufacturing and engineering (M&E) assets in India.
"UMW Corp (UMWC), a 100 per cent-subsidiary of UMWH, has inked a sale and purchase Agreement with Datuk Muthukumar Ayarpadde (founder of privately owned MK Group of companies) to sell UMWC’s non-core M&E assets for a total RM73 million cash.
"This comprise a 61.08 per cent stake in MK Autocomponents Ltd (MKAL) for RM21 million, a 55 per cent stake in MK Automotive Industries Ltd (MKAIL) for RM16 million, and 106 million compulsory convertible debentures (CCD) issued by UMW Dongshin Motech for RM36 million.
"UMWH’s disposal of non-core M&E assets in India is positive, in line with its strategy to streamline its core operations. No change to our earnings from this development; potential upside from stronger-than-expected Toyota vehicle sales. Reiterate 'buy' with an unchanged RM12.44 target price.
"UMWH expects the proposed disposals to result in an impairment loss of approximately RM93 million or 8 sen/UMWH share. Upon sale completion by end-2014,
MKAL and MKAIL will cease to be subsidiaries of UMWH," said Maybank in its research notes.
Maybank said it is positive on this disposal as it is in line with UMWH’s longer term strategy to rationalise its non-core operations and relocate its
resources to its core operations, where UMWH has better expertise.
"We understand from the management that these companies were loss-making at RM40 million in total, in FY 2013. Our forecasts are unchanged as the disposal is not expected to have any material impact on earnings.
There is upside to our forecast for UMWH’s auto earnings as first half 2014 Toyota vehicles sales beat our expectations at 55 per cent of our FY 2014 forecast. UMWH remains a 'buy' with compelling valuations at just 12.8 times FY 2015 earnings."