UMW en route to strong earnings recovery in
KUALA LUMPUR: UMW Holdings Bhd’s (UMW) disposal of its non-listed oil and gas (O&G) assets are progressing well and analysts believe that the group is on track to a strong recovery in the second half of 2017 (2H17).
In a filing on Bursa Malaysia, UMW announced that it has entered into a share sale agreement with DKLS Luxuria Sdn Bhd for the disposal of its 70 per cent stake in UMW Fabritech Sdn Bhd (UMW Fabritech) with a total cash consideration of RM18 million. UMW Fabritech is a private company with principal activities that involves providing sandblasting, priming, coating, inspection, maintenance, and repair services to the O&G industry.
According to UMW, the proposed disposal is in line with the company’s move to exit its investments in the O&G sector.
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the move further cements UMW’s intention to distance itself from its loss-making O&G segment.
It pointed out that UMW aims to fully dispose its non-listed O&G units by end of the financial year 2018 forecast (FY18F), after relinquishing its 56 per cent stake in listed UMW Oil and Gas Corporation Bhd (UMWOG) back in July 2017.
It also highlighted that the RM18 million (or 1.5sen/share) proceed is less than one per cent of group’s gross cash, but is a positive development nonetheless.
“UMW’s progressive exit from the O&G industry should act as strong share price catalysts in
UMW’s progressive exit from the O&G industry should act as strong share price catalysts in the next 12 months.
the next 12 months,” the research team opined.
It further pointed out that UMW has prudently taken massive impairments for its O&G investments amounting to a total RM1.3 billion last year, in-line with its intent to exit the sector.
“Post-impairments, core losses from the non-listed O&G units have shrunk by more than two thirds to circa RM10 million per quarter.
“UMW Fabritech specifically, was making losses of RM2 million per annum, circa five per cent of total losses posted by the non-listed O&G units,” the research team explained.
Altogether, UMW has 16 assets to exit within four different segments. These include its drilling and exploration assets, OCTG and line pipe segment, fabrication assets, and trading and oilfield services.
Overall, MIDF Research strongly believed that UMW is on track to a strong recovery in 2H17.
“As we had alluded to, UMW’s FY17F earnings is backloaded and the catalysts for earnings to improve in 2H17 is falling into place (are) a much stronger ringgit against the US dollar, the launch of four new facelifts in September 2017, the elimination of UMWOG (listed co) losses which stood at RM86 million in 1H17, the launch of new MyVi in 4Q17, and its progressive exit from non-listed O&G investments to gradually reduce non-listed O&G losses.”
Meanwhile, it pointed out that the gradual monetisation of UMW’s massive Serendah land which will kickstart soon and progress in disposing the nonlisted O&G units should also act as strong share price catalysts in the near-term.
MIDF Research reaffirmed its contrary ‘buy’ call on the stock.
MIDF Research