UMW Holdings - BUY - 26 May 2008

UMW Holdings - 1Q08 earnings within expectations (Results Note)



Price: RM6.65

Target Price: RM8.00

Recommendation: BUY



· Results in line. 1Q08 net profit of RM141.8m represents 26.5% and 27.6% of our forecast and consensus' respectively mainly on the back of strong Toyota and Perodua vehicle sales.

· Substantial 76.5% YoY growth in 1Q08 net profit driven by improved margins, favourable currencies movement (hinged upon Ringgit strengthening against USD and Yen) and higher contributions from associated companies, namely Perodua. Total Toyota and Perodua vehicle sales of 68,654 units represented 52.5% of the Total Industry Volume.

· Marginal 3.3% QoQ net profit growth as a result of lower operating margins recorded especially by its O&G segment due mainly to the refurbishment of Naga-1 for duration of almost half of 1Q08. Automotive segment's contribution was also narrower QoQ, due to comparative strong vehicle sales QoQ.

· No interim dividend was announced, however, we believe the Group is on track to achieve its 2008 KPIs of minimum ROE of 14% and minimum dividend payout ratio of at least 50%. We expect UMW to table out gross DPS of 35 sen for FY08.

· Earnings estimates unchanged. Despite demand remain strong to-date, we are maintaining our Toyota and Perodua estimated sales of 86,000 and 158,900 units, respectively, for 2008 on expectation of private consumption spending is slow down to around 7-8% from 11.5% a year ago. We expect continued growth for its O&G segment driven mainly by: (1) strong order book from Wuxi and (2) robust O&G exploration and production activities on the back of rising crude oil prices.

· Maintain BUY with Target Price of RM8.00 based on PER of 16x to its FY08 EPS of 49.7sen. We believe current share price offers investors good opportunity to buy into UMW's early cycle of its O&G overseas ventures.





KENANGA INVESTMENT BANK BERHAD (15678-H)