Thursday, 19 April 2012

AmResearch upgrades UMW to Buy, raises fair value to RM8.90

KUALA LUMPUR (APRIL 19): AmResearch Sdn Bhd has upgraded UMW HOLDINGS BHD [] to a Buy from hold previously, and raised its fair value to RM8.90 (from RM6.80).

In a note April 19, the research house said its sum-of-parts- derived valuation implied 12 times FY12F earnings (vs. 10x previously) to reflect an earnings re-acceleration which could test record highs from this year onwards.

“We raise earnings by 20%-25% over FY12F-14F to factor in:- (1) Higher auto sales; (2) Higher O&G earnings; and (3) Improved margins at the equipment division.

“After a kitchen sinking year in FY11, we believe earnings have reached an inflection point. Consensus earnings have been downgraded 7%-23% over the past 12 months, and we believe the earnings revision cycle has bottomed,” it said.

AmResearch said its forecasts were now 11% above street estimates and consensus earnings upgrades are a key re-rating catalyst.

It said a fresh mass model line-up, i.e. Avanza, IMV models and the high margin CKD Camry in June, coupled with stronger margins via a stronger Ringgit and improved plant economies of scale will drive a re-acceleration of UMW’s auto earnings (FY12F: +20%).

“We project a Toyota+Lexus TIV of 92,953 units (+5% YoY). Toyota sales are trending against industry (+7% YTD vs. Industry’s -13%).

“March growth momentum is likely to gain traction given:- (1) Recovery from supply crisis; (2) Huge order backlog of 4-6 months’ waiting list; and (3) A more than doubling of Camry annual sales. From a valuation stand-point,

The research house said UMW was a blue-chip laggard, having underperformed the market run-up over the past 6 months.

At 10.5 times FY12F earnings, UMW is trading at a 25% discount to the historical average of 14 times, it said.

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