Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: KENANGA
UMW Holdings Bhd
(Aug 13, RM6.33)
Maintain hold at RM6.30 with reduced target price of RM6.10 (from RM6.60): NAGA 2 and NAGA 3 are expected to negatively affect UMW's earnings performance as they remain warm-stacked. If not deployed, the two rigs will incur substantial operating costs. UMW has been unable to secure a contract at a reasonable rate since the rig market is currently facing an oversupply, pushing utilisation down in the offshore market rig segment, leading to downward pressure on day rates. However, NAGA 1's contract (which is due to expire soon ) is likely to be extended at possibly higher day rates.
Wuxi Seamless Oil Pipe Company (WSP) has been affected by duties in the US, the moratorium on exploration in the Gulf of Mexico and unfavourable market conditions. The countervailing and anti-dumping policies imposed on WSP's seamless pipes, coupled with the decline in oil prices are likely to continue to negatively affect its overall profitability. The US accounted for 34.3% of WSP's net revenue in FY2008; it now accounts for only 9% of its net revenue. Moreover, its domestic sales have declined as well due to oversupply and a decrease in average selling prices. Profit turnout in WSP in FY2010 is highly unlikely, and we expect it to register a loss of US$40 million and a profit of US$5.8 million in FY2011.With weaker offshore rig fleet utilisation in the market, we have lowered our'' FY2010 net forecast by 6.23% to RM452.5 million as day rates are under tremendous downward pressure. We believe the demand for jack-up rigs will be relatively flat for FY2010. We do not expect a profit turnout by UMW's O&G division for FY2010 as outlook remains bleak for WSP, and NAGA 2 and NAGA 3 jack-up rigs are not expected to be in operation until at least 1Q2011.
We expect the automotive and M&E division to buoy earnings despite the negative outlook for UMW's O&G division. The expected losses in the O&G division should be mitigated by the company's'' solid and sustained performance in the automotive division, supported by favourable currency movements, higher economies of scale on increased sales volume, improving macroeconomic factors and robust demand on new facelift and variant models from Perodua and Toyota. We are revising upwards our FY2010 sales forecast to 91,000 units (Toyota) from 85,915 units and 185,000 (Perodua) from 165,942 units originally, attributable to strong sales performance in 1H2010.
Maintain 'hold' with a revised target price of RM6.10 (previously RM6.60) based on 10 times PER for the automotive division and 10 times for the O&G division. ' Kenanga Investment Research, Aug 13
This article appeared in The Edge Financial Daily, August 16, 2010.
Company Name: UMW HOLDINGS BHD
Research House: KENANGA
UMW Holdings Bhd
(Aug 13, RM6.33)
Maintain hold at RM6.30 with reduced target price of RM6.10 (from RM6.60): NAGA 2 and NAGA 3 are expected to negatively affect UMW's earnings performance as they remain warm-stacked. If not deployed, the two rigs will incur substantial operating costs. UMW has been unable to secure a contract at a reasonable rate since the rig market is currently facing an oversupply, pushing utilisation down in the offshore market rig segment, leading to downward pressure on day rates. However, NAGA 1's contract (which is due to expire soon ) is likely to be extended at possibly higher day rates.
Wuxi Seamless Oil Pipe Company (WSP) has been affected by duties in the US, the moratorium on exploration in the Gulf of Mexico and unfavourable market conditions. The countervailing and anti-dumping policies imposed on WSP's seamless pipes, coupled with the decline in oil prices are likely to continue to negatively affect its overall profitability. The US accounted for 34.3% of WSP's net revenue in FY2008; it now accounts for only 9% of its net revenue. Moreover, its domestic sales have declined as well due to oversupply and a decrease in average selling prices. Profit turnout in WSP in FY2010 is highly unlikely, and we expect it to register a loss of US$40 million and a profit of US$5.8 million in FY2011.With weaker offshore rig fleet utilisation in the market, we have lowered our'' FY2010 net forecast by 6.23% to RM452.5 million as day rates are under tremendous downward pressure. We believe the demand for jack-up rigs will be relatively flat for FY2010. We do not expect a profit turnout by UMW's O&G division for FY2010 as outlook remains bleak for WSP, and NAGA 2 and NAGA 3 jack-up rigs are not expected to be in operation until at least 1Q2011.
We expect the automotive and M&E division to buoy earnings despite the negative outlook for UMW's O&G division. The expected losses in the O&G division should be mitigated by the company's'' solid and sustained performance in the automotive division, supported by favourable currency movements, higher economies of scale on increased sales volume, improving macroeconomic factors and robust demand on new facelift and variant models from Perodua and Toyota. We are revising upwards our FY2010 sales forecast to 91,000 units (Toyota) from 85,915 units and 185,000 (Perodua) from 165,942 units originally, attributable to strong sales performance in 1H2010.
Maintain 'hold' with a revised target price of RM6.10 (previously RM6.60) based on 10 times PER for the automotive division and 10 times for the O&G division. ' Kenanga Investment Research, Aug 13
This article appeared in The Edge Financial Daily, August 16, 2010.
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