Saturday, August 15

UMW’s 1H17 earnings garner mixed views

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KUCHING: UMW Holdings Bhd’s (UMW) first half of 2017 (1H17) earnings have garnered mixed views, either coming within or slightly below expectations.

In a filing on Bursa Malaysia, UMW reported the group’s profit before taxation from continuing operations for the six months ended June 30, 2017 amounted to RM108.1 million, a 45.5 per cent decrease compared to RM198.3 million registered in the same period last year.

“The group posted a loss before taxation from discontinued operations of RM283.2 million for the six months ended June 30, 2017, as compared to RM132.4 million in the corresponding period of 2016,” the group said.

UMW’s 1H17 core profit after tax and minority interest (PATAMI) of RM27 million excluding the impairment (RM2.8 million), appeared to be below the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) and consensus PATAMI estimates of RM455.7 million and RM261.8 million, respectively.

However, Kenanga Research considered the results to be within expectation as it expects a stronger 2H thanks to the elimination of losses in oil and gas segment following the demerger of UMW Oil & Gas Corporation Bhd (UMW Oil & Gas) in July 2017.

Meanwhile, the group’s 1H17 core earnings were a tad below the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectations due to higher-than-expected pre-operating expense from UMW’s new fan case plant.

However, from the third quarter of 2017 (3Q17), MIDF Research noted that earnings should improve significantly from absence of UMW Oil & Gas losses.

“Expect further improvement in auto earnings against the seasonally weak and peak US dollar in 1H17 and driven by new launches in 2H17,” it said.

MIDF Research’s recent chat with management suggested pre-operating expenses from the fan case manufacturing plant (to commence supplies to Rolls Royce from 4Q17) could be larger than the research arm’s earlier estimates.

The research arm thus trimmed its financial year 2017-2018 forecast (FY17F-18F) by seven per cent and 10 per cent respectively, to factor in a loss run-rate of approximately RM14 million per quarter from the plant, before turning profitable in FY19F.

Moving forward, Kenanga Research projected that the strategic exit from the oil and gas (O&G) industry is expected to improve the group’s profitability with more solid balance sheet.

“Additionally, the anticipated upcoming new models – such as the Toyota CH-R, Toyota Vios 2017 and Toyota Hilux 2.4G Limited Edition – should excite consumers, bringing in more sales volume to the group,” it said, adding that the group is on track to meet the targeted 272,000 units in FY17.

Nonetheless, the research arm maintained its neutral stance on UMW in view of the single-digit growth in the group’s automotive segment sales volume pending the completion in its new Bukit Raja Plant and the gestation period for its Rolls-Royce plant.

No changes were made in Kenanga Research’s earnings assumption as the research arm expected a much stronger 2H due to the elimination of losses in O&G segment following the demerger of UMW Oil & Gas.