KUALA LUMPUR: CIMB Research assigned a 'hold' rating on UMW Holdings Bhd with a RM12.31 target price following improved overall performance.
"UMW's first half (H1) core net profit made up 51 per cent of our full year
forecast and 50 per cent of consensus.
"We deem this above expectation, as we expect a stronger second half (H2). Automotive, O&G and M&E segments all recorded satisfactory growth in pre-tax earnings.
"We raise our FY 2014-16 earnings per share forecasts by 2-5 per cent to reflect a better outlook for the equipment and M&E segments."
"Higher auto sales volumes and faster turnaround in its equipment segments are potential re-rating catalysts," said CIMB in its report today.
CIMB said UMW's automotive segment registered a 10 per cent increase in net profit to RM375.1 million on the back of 12 per cent on-year growth in revenue.
"The better performance was driven by the improved sales of Toyota vehicles. Toyota vehicles' H1 sales volume rose 17 per cent on-year to 51,122 units. The encouraging performance was driven mainly by Vios and Altis full model changes.
"As a result, Toyota's market share increased by 1.4 point to 15.8 per cent in H1 of 2014. However, its associate Perodua's H1 sales volume declined 2 per cent on-year to 94,480 units due to fierce competition. With the Perodua Axia set to be launched in September 14, we expect Perodua's sales volume to rebound in H2."
CIMB noted that the group's equipment segment's H1 net profit dropped 5 per cent to RM82.8 million on the back of a 4 per cent slide in revenue.
"This was mainly due to the continued drop in commodity prices in Papua New Guinea and the continued suspension of mining activities in Myanmar.
"However, with the Myanmar government recently announcing that the suspension of jade mining activities will be lifted from Sept 1, we expect the group to benefit from the resumption of mining activities and secure more orders for its Komatsu
equipment in the country."
CIMB said the M&E segment saw its H1 net profit surge 239 per cent to RM10.1 million partly due to the improved operating margin contribution from its lubricant business in China.
"This division has been steadily turning around; it recorded a loss of RM40.9 million in FY 2013 due to its India operations. We expect this division to remain profitable throughout FY 2014."