CIMB lowers UMW target price to RM12.83

From Star Online Business: Online
2nd Sep 2013

KUALA LUMPUR: CIMB Equities Research has lowered its target price for UMW Holdings from RM14.70 to RM12.83 after its second quarter results for the period ended June 30, 2013 (Q2, 2013).

It said on Monday that UMW’s losses in India were behind the results setback that took 1H13 core EPS to just 38% of its full-year forecast and 44% of consensus numbers.

“The main worry is the current and future losses for the manufacturing division on the back of rupee depreciation. We cut our EPS forecasts by 18-19% and lower our RNAV-based target price. We maintain our Neutral rating,” it said.

CIMB Research said despite a 27% on-year decline in profit before tax (PBT) for the automotive division, 2Q13 core EPS still managed to rise by 12% on-year, thanks to the strong performance of  the O&G division, which was up 310% on-year in PBT to RM75.8mil, in line with its forecast.

The 2Q13 Toyota unit sales fell 18.6% on-year but this was offset by a 9.8% increase in Perodua’s volumes on the back of the new MyVi. UMW managed to hold onto its consolidated market share position at 47.8% of total units sold in 2Q13.

“It looks like UMW’s strategy is to let its competitors through with their new models and regroup later for the much-awaited launch of the Vios in 2H13,” it said.

CIMB Research had previously cut its Toyota sales growth forecast to 0% for FY13 in its recommendation downgrade in June.

“We are now cutting it to -6%. We keep our Perodua growth forecast at 0% as MyVi sales could be tempered by the new Proton Saga SV,” it said.

As for UMW’s manufacturing and equipment division, it recorded a loss of RM2.5mil compared to a 1Q13 PBT of RM9.4mil because of forex translation losses on an estimated US$50.3mil 7%-10% debt held by its three Indian subsidiaries in the autoparts, die and stamping  business.

“Although the exposure is limited, we are concerned about sustained losses and now forecast a FY14 loss of RM124mil for the division.

“No buying opportunity yet UMW’s recent price weakness is not yet a buying opportunity though it has sufficiently priced in the exposure  to India as we have applied no value to manufacturing in our RNAV,” it said.

[Source]