UMW seen posting better earnings
PETALING JAYA: UMW Holdings Bhd is expected to record better earnings on the back of improved auto sales and the disposal of subsidiary UMW Oil & Gas Corp Bhd (UMW-OG), according to MIDF Research.
“From the second quarter of 2017, earnings should improve quite significantly from the absence of UMW-OG losses in the second half and further improvement in auto earnings against the seasonally weak and peak dollar in the first quarter,” it said in a report yesterday.
The research house pointed out that after almost a year of consecutive core net losses, UMW finally turned in a core net profit of RM20mil in the first quarter ended Dec 31, 2016, despite still consolidat- ing the loss making oil and gas units (O&G).
“While small relative to our 2017 forecast, the earnings were within expectations.”
MIDF said UMW’s automotive division registered a 5% year-onyear earnings growth, driven by improved Toyota and Perodua total industry volume (TIV).
“Earnings would have been much stronger if not for the strong dollar in the first quarter of 2017.
“Auto revenue actually grew by some 40% year-on-year in the first quarter but bottomline was dragged by a 10% year-on-year strengthening of the dollar to RM4.45 - every 1% change impacts earnings by 6.5% on annualised basis, on our estimate.”
The research house said this was however partly mitigated by duty savings from newly qualified energy efficient vehicle models, such as the Vios, Innova and Fortuner.
“We expect foreign exchange pressure to ease quite significantly in the second quarter of 2017 judging by spot trends.
“Secondly, the first quarter is typically the weakest quarter for autos and typically accounts for just 16% of full year TIV and 16% to 18% of full-year earnings.
“We also suspect tax rate was inflated for subsidiary UMW Toyota in the first quarter of 2017.”
Separately, MIDF said losses from non-listed O&G units shrunk by more than two thirds year-on-year as a result of lower depreciation and lower operating losses, as operations were scaled down and improvements in China operations. “The group targets to totally exit its O&G businesses by 2018 and may involve piecemeal asset sale.
“For the listed O&G units, losses could narrow as jack up rig utilisation should more than double in the second quarter as new contracts come into play.”
MIDF also said the company’s 2017 earnings will be backloaded given the absence of UMW-OG losses in the second half of 2017, peak dollar in the first quarter and seasonally stronger volumes, as well as new launches in the second half of this year.