UMW Holdings Bhd
(Dec 23, RM6.60)
Maintain hold at RM6.45 with target price of RM6.10: WSP Holdings Ltd, a 23% China-based associate of UMW, continues to be loss making for the last nine consecutive quarters with net loss of US$17 million (RM53.7 million) in 3Q11 and US$50 million for 9M11. Against this backdrop, we have trimmed UMW’s 2011-12 earnings by 1% to 3% with a higher net loss assumption at WSP. Coupled with headwinds at the auto division, there are minimal catalysts to re-rate UMW, which is a “hold” with an unchanged RM6.10 target price, pegged at 11 times 2012 EPS.
WSP remained loss-making albeit with a lower net loss of US$17 million in 3Q11 (-14% quarter-on-quarter [q-o-q]). This brings 9M11 net loss to US$50 million (-25% year-on-year[y-o-y]). The reduced sequential net loss was mainly due to: (i) an increase in export sales volumes (+12% q-o-q), (ii) rise in blended ASP to US$1,196 per tonne (+14% q-o-q) and (iii) improved product mix as gross margins rose 5.4 percentage points q-o-q. This was partially offset by lower domestic sales of US$89 million (-17% q-o-q). Domestic sales volume fell 20% q-o-q, offset in part by an improved average selling price (+4% q-o-q to US$879 per tonne). WSP provided US$5.4 million for doubtful debts in 3Q11.
We expect WSP’s operating prospects to remain challenging, as trade disputes will continue to affect performance. The exports destined for US remain affected by anti-dumping and countervailing duties. We do not expect the situation to improve in 2012. For this, we have cut WSP’s 2011-12 earnings forecasts. Our WSP forecast imputes: (i) an 11 to 12 ppt cut in gross margin, and (ii) a 55% increase in interest expense on higher borrowings. This effectively lowers UMW’s net profit by 1% for 2011 and 3% for 2012.
Recall that private equity, H.D.S Investments LLC (HDS) has proposed to acquire WSP at 60 cents per share with the intention of taking it private. We expect an 8% rise in UMW’s 2012 earnings should this deal go through. In the event all proceeds are fully distributed, UMW’s shareholders could get a special dividend per share of eight sen. — Maybank IB Research, Dec 23
This article appeared in The Edge Financial Daily, December 27, 2011.
(Dec 23, RM6.60)
Maintain hold at RM6.45 with target price of RM6.10: WSP Holdings Ltd, a 23% China-based associate of UMW, continues to be loss making for the last nine consecutive quarters with net loss of US$17 million (RM53.7 million) in 3Q11 and US$50 million for 9M11. Against this backdrop, we have trimmed UMW’s 2011-12 earnings by 1% to 3% with a higher net loss assumption at WSP. Coupled with headwinds at the auto division, there are minimal catalysts to re-rate UMW, which is a “hold” with an unchanged RM6.10 target price, pegged at 11 times 2012 EPS.
WSP remained loss-making albeit with a lower net loss of US$17 million in 3Q11 (-14% quarter-on-quarter [q-o-q]). This brings 9M11 net loss to US$50 million (-25% year-on-year[y-o-y]). The reduced sequential net loss was mainly due to: (i) an increase in export sales volumes (+12% q-o-q), (ii) rise in blended ASP to US$1,196 per tonne (+14% q-o-q) and (iii) improved product mix as gross margins rose 5.4 percentage points q-o-q. This was partially offset by lower domestic sales of US$89 million (-17% q-o-q). Domestic sales volume fell 20% q-o-q, offset in part by an improved average selling price (+4% q-o-q to US$879 per tonne). WSP provided US$5.4 million for doubtful debts in 3Q11.
We expect WSP’s operating prospects to remain challenging, as trade disputes will continue to affect performance. The exports destined for US remain affected by anti-dumping and countervailing duties. We do not expect the situation to improve in 2012. For this, we have cut WSP’s 2011-12 earnings forecasts. Our WSP forecast imputes: (i) an 11 to 12 ppt cut in gross margin, and (ii) a 55% increase in interest expense on higher borrowings. This effectively lowers UMW’s net profit by 1% for 2011 and 3% for 2012.
Recall that private equity, H.D.S Investments LLC (HDS) has proposed to acquire WSP at 60 cents per share with the intention of taking it private. We expect an 8% rise in UMW’s 2012 earnings should this deal go through. In the event all proceeds are fully distributed, UMW’s shareholders could get a special dividend per share of eight sen. — Maybank IB Research, Dec 23
This article appeared in The Edge Financial Daily, December 27, 2011.
