UMW: Worst is over
Conglomerate’s outlook improving as it exits oil and gas
WITH its loss-making oil and gas (O&G) assets out of the way, UMW Holdings Bhd is confident that the worst is now behind the company.
The diversified conglomerate, which has suffered two years of financial losses, believes it has already solidly turned the corner to profitability since the start of this year, as evidenced by its impressive first quarter results for the period ended March 31.
Voicing his optimism, UMW president and group chief executive officer Badrul Feisal Abdul Rahim tells a group of reporters over the week that the prospects of the company will remain positive through the year.
“The outlook will be good,” Badrul Feisal says, noting that UMW’s first quarter financial result is indication that the group is off to a solid start in 2018.
And a first dividend in two years to shareholders in conjunction with the group’s first-quarter performance further underscores its optimism.
“I do believe that the worst is over for UMW, we have turned around,” Badrul Feisal points out at a press conference after the company’s AGM recently.
UMW saw its first quarter net profit more than triple upon the exit from its listed O&G business and improvement in profit margins, driven by a strong ringgit against the US dollar.
Net profit surged to RM74.08mil, or 6.34 sen per share, in the first three months of 2018 from RM20.17mil, or 1.73 sen per share, a year earlier, and the group declared an interim single-tier dividend of five sen per share, which translates into a payout of 79%.
Revenue for the quarter, however, declined 10% or RM280mil to RM2.42bil from RM2.7bil previously due to lower sales of passenger cars.
According to Badrul Feisal, UMW, which completed the divesture of its listed O&G investments last year, will be fully out of its loss-making O&G venture by the end of 2018.
On that note, he points out that UMW will focus on strengthening its three core business segments, namely automotive, equipment, and manufacturing and engineering (M&E), to drive growth.
In fact, the group has allocated RM600mil as capital expenditure (capex) for 2018 to strengthen those three business segments.
Of the total capex earmarked for this year, UMW reveals that RM200mil will go to its automotive division; another RM200mil to its equipment division; RM100mil for its M&E division; and RM100mil for the redevelopment of land in Serendah into a high-value manufacturing park.
Despite the challenging environment of strict lending guidelines and subdued consumer sentiment, UMW expects its automo- tive division to maintain a satisfactory performance this year.
In terms of car sales, Badrul Feisal says the group aims to deliver more than 279,000 units, driven by new model launches from Toyota (70,000 units) and Perodua (209,000 units) this year.
This compared with the total sales volume of about 275,360 units it achieved last year.
“Our sales volume target for 2018 is still the same, but we remain hopeful that we can beat the target,” Badrul Feisal says.
For Toyota, the group expects sales this year to be backed by new launches of SUV models such as C-HR and Harrier, while Perodua sales will remain supported by robust demand for entry level vehicles.
At present, UMW remains in hot pursuit of control of MBM Resources Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to strengthen its dominant position in the domestic automotive market.
Despite poor response from MBM and its major shareholder Med-Bumikar Mara Sdn Bhd to UMW’s takeover offer thus far, UMW group chairman Tan Sri Hamad Kama Piah Che Othman has said that the group has no intention to raise the offer price to sweeten the deal at this juncture.
“We have already extended the offer period. It is up to them to evaluate whether to sell or do something else,” Hamad Kama Piah says.
“For the time being, we will stick to our position until such a time that we feel it is suitable to take a different stance,” he adds.
A market observer notes there is a strong likelihood that UMW will end up raising its offer price for MBM if the group is intent on taking up the controlling stake in the latter.
“As it is, the target company and its major shareholder have already shown their lack of enthusiasm over the current offer, which is seen as undervaluing MBM’s business,” the analyst says.
“So, there is a potential risk of UMW raising its offer price for the deal to go through,” he explains.
UMW currently owns a 38% stake in Perodua.
It has been the single largest shareholder in Perodua since 1993.
In March, UMW made an offer to MedBumikar Mara for controlling 50.07% stake in MBM at RM501mil, or RM2.56 per share.
UMW also launched an offer to buy Permodalan Nasional Bhd’s (PNB) 10% interest in Perodua at RM417.5mil, or RM29.80 apiece.
MBM owns a direct 20% stake in Perodua and an indirect interest of 2.5% in the company through a joint venture with Daihatsu of Japan.
So, the proposed offers will raise UMW’s effective stake in Perodua to 70.6% if they went through.
MBM and PNB have up to Oct 31, 2018, to decide on whether to accept UMW’s offers.
This is the new deadline that has been set after the original deadline lapsed on April 30, without any positive response from any party.
Meanwhile, Badrul Feisal reveals that UMW is currently in preliminary negotiations with several potential partners to expand its high-value manufacturing business.
“With the capability and capacity that we have now, we can enter into precision engineering industries such as medical devices and aerospace,” he says.
“We are currently talking to a number of potential partners... but there is nothing concrete yet, it is still very preliminary,” he adds.
UMW’s shares fell one sen to close at RM6.40. Year-to-date, the counter has gained 23%.