UMW HOLDINGS BHD

By MIDF Research Buy (maintained) Target price: RM7.20

MIDF Research has reaffirmed a ‘buy’ rating with unchanged target price of RM7.20 per share, stating key catalysts for UMW’s growth include demerger of oil and gas (O&G) units, reversal of prior years’ market share loss, monetisation of UMW’s 711 acres Serendah land and quadrupling of mechanical and engineering segment earnings.

UMW’s sales have picked up since the launch of the four facelift models and new variants this months – Vios, Fortuner, Hilux and Innova.

The group is on tract to achieve, if not exceed its FY17 forevast target volume of 70,000 units (which implies a conservative 9.8% y-o-y growth).

Year-to-date, Toyota total industry volume (TIV) has far outstripped industry growth at 21.7% versus industry’s 4.7%.

On addressing foreign exchange (forex) volatility for autos, MIDF said other than UMW’s own measure to address forex volatility, MIDF thinks that the principal, Toyota Motor Corp has also been providing incentives to UMW on a case by case basis since early FY17 forecast.

“UMW has locked up rates till Sep 17 at a much lower RM4.24 (3% improvement versus first half of 2017) and this is expected to reduce further to RM4.21 in 4Q17. Spot rates currently stand at an even lower RM4.19. “This should provide a big kicker to auto earnings in 2H17. Every 1% change in USD impacts FY18F earnings by

4.7% on our estimates,” MIDF said. On UMW’s non-listed O&G asset disposal, MIDF said this was in progress. There are 16 assets to exit within four different segments and these include drilling and exploration, oil country tubular goods (OCTG) and line pipe, fabrication as well as trading and oilfield services.

Meanwhile, MIDF said UMW is in talks with potential buyers of two plots of land in Serendah, which will unlock significant value.

To recap, total land owned by UMW is 861 acres, of which only 30 acres was occupied by UMW’s fan case manufacturing plant.

“Total value of UMW’s Serendah land is worth 40sen/share, easily 6% of our sum-ofparts valuation. The two buyers are high value manufacturing companies (tie-ups with foreign partners) and is part of UMW’s larger plan to create an aerospace industry cluster at Serendah.

“The remaining 551 acres is slated for mixed development in the future with a strategic partner. Interestingly, we understand UMW is exploring methods to bring forward the value unlocking and monetisation of its vast Serendah landbank,” noted MIDF.