Results: UMW Holdings (UMWH MK; HOLD; TP: MYR9.50) - Within our expectation

UMW Holdings (UMWH MK; HOLD; TP: MYR9.50) - Within our expectation

• 1Q15 core earnings within our street-low forecast, below consensus. 1Q15 core net profit of MYR172m (+56% QoQ, -24% YoY) met 27%/19% of our and consensus full-year forecasts. Headline 1Q15 net profit included a net negative MYR7m mainly from write-down of inventories and impairment of receivables.

1Q15 pretax profit was up 10% QoQ, but down 33% YoY. The QoQ improvement in pretax profits was mainly due to (i) a much smaller loss of MYR57m in the non-core division (4Q14: -MYR185m) and (ii) stronger profits from the Equipment division (+25% QoQ) on better demand. However, this was partially offset by (i) a 26% fall in Auto pretax earnings on weak Toyota vehicle sales (-40% QoQ) and further exacerbated by (ii) a 49% drop in O&G earnings on lower utilisation and DCRs of its jack-up (JU) rigs.

• Stay sideline.  We trim FY15/16/17 earnings by 4%/3%/3% after lowering our forecasts for UMWOG on lower rig DCRs and operating days. We foresee downward adjustments to consensus’ earnings due to 1Q15 earnings shortfall and after incorporating recent negative developments.

With no major catalyst in sight, we expect 2Q15 earnings to remain lacklustre as (i) weak Toyota vehicle sales overshadows Perodua’s growth, (ii) the stronger USD continues to weigh on UMWH’s imported component cost and (iii) lower DCRs and utilisation of UMWOG’s JUs would dampen O&G earnings.

Maintain HOLD with a lower SOP-based TP of MYR9.50 (-6%), having incorporated our lower TP for UMWOG. Valuations are fair at 17x FY16 PER, backed by an 3.2% yield for FY15 (based on 65% DPR).