UMW to divest remaining O&G business by year-end

PETALING JAYA: UMW Holdings Bhd expects its aerospace component manufacturing plant in Serendah, Selangor, to reach full production in three years’ time.

The company also plans to divest its remaining interest in the oil and gas (O&G) business by the end of the year, a move that would leave it with only the automotive and aerospace businesses.

The aerospace plant, which produces fan cases for Rolls-Royce Plc, started the first delivery in November last year and marks UMW’s foray into the high-value manufacturing sector.

The fan cases supplied to RollsRoyce are eventually utilised for the production of commercial aircraft such as the Dreamliner and Airbus A330neo.

Going forward, UMW Aerospace plans to broaden its engagement with Rolls-Royce to include the production and supply of other aerospace engine parts and components to build up its capabilities in the aerospace segment of the business, the company said in its latest annual report.

Another major target that the Permodalan Nasional Bhd (PNB)-controlled company has set for this year is to divest its remaining interest in the O&G business by the end of the year.

In early 2017, UMW divested a major portion of its O&G business by carving out UWM Oil & Gas Corp Bhd from its books through a corporate exercise backed by PNB. It still holds some remnants of the O&G business such as the manufacturing of pipes in China and joint ventures in Australia and the Middle East.

“By end-2018, we are targeting to achieve a complete exit from the O&G segment,” said its president and group chief executive officer Badrul Feisal Abdul Rahim.

Post-exit the O&G sector, UMW will be focused on three segments – automotive, the distribution of heavy equipment for the logging, construction and mining industries, and the manufacturing of parts for the automotive and aerospace sectors.

In the automotive sector, UMW’s mainstay is its partnership with Toyota Motor Corp of Japan that forms the bedrock of its exclusivity in the assembly and distribution of Toyota and Lexus vehicles in the country.

UMW is also the single largest shareholder in Perusahaan Otomobil Kedua Sdn Bhd (Perodua) with 38%. Perodua is the leading automotive group in the country with a 35% market share. UMW has made a bid to increase its stake in Perodua and is likely to end up with close to 70% of the automotive group by the end of this month.

Although UMW is currently among the market leaders in the non-national car segment, its current automotive segment has come under pressure due to various factors from increased competition, lower margins and weak demand to the volatility of the ringgit against the dollar. A weaker ringgit negatively impacts its profit margins.

“If it manages to get a bigger portion of Perodua, UMW will be able to mitigate the currency risk better because Perodua cars have higher local content,” said an analyst.

> This article first appeared in StarBiz Premium.