UMW shares trading at rich valuations

UMW shares trading at rich valuations

Tags: Brokers Call | OSK Research | UMW

Written by Financial Daily
Friday, 09 October 2009 10:39

OSK Research Sdn Bhd has raised its fair value for UMW HOLDINGS BHD [] shares by 12% in anticipation of better performance at the diversified firm’s automotive, and oil and gas (O&G) units.

The upward revision in UMW’s share price was despite OSK reiterating its sell call for the stock whose valuations are deemed more expensive compared to its peers. UMW shares are also overvalued compared to its net tangible assets (NTA) or book value, according to the research firm.

“Pending further developments from its oil and gas division, we continue to retain our earnings estimates at this juncture,” OSK wrote in a note.

UMW shares are deemed fairly valued at RM5.27, compared with the earlier forecast of RM4.27.

The higher target price for UMW is derived from a higher price-to-earnings ratio (PER) estimates for the automotive and oil and gas divisions. This is in anticipation of UMW, the franchise holder for Toyota vehicles in Malaysia, selling more cars next year.

Meanwhile, the O&G unit is expected to do better on expectation that its earnings would be helped by incoming contracts from oil majors as crude oil demand recovers.

At a PER of 23 times financial year (FY) 2009 earnings, and 16 times FY10 earnings, UMW’s share valuations are deemed costlier than its peers which are trading at 13 times and 10 times, respectively.

“The counter has consistently traded at a premium of 50% to 80% against the auto sector PER, partly due to the oil and gas play since 2007,” OSK said.

UMW’s O&G arm UMW Oil & Gas Bhd will be closely watched as it is expected to seek listing on the Malaysian bourse soon. Its planned flotation, originally scheduled for the third quarter of last year, was postponed twice due to unfavourable market conditions.

The exercise was expected to raise about RM425 million. Following the expiry of authorities’ approval for the initial listing proposal, UMW is now considering submitting a new flotation plan to the Securities Commission.

The proposal has to be revised because the number of operating units under UMW Oil & Gas is expected to more than double to 30 from 14 entities under the original arrangement.

With more operating units on board, UMW Oil & Gas is expected to seek a better value for its initial public offering (IPO).

UMW was traded unchanged at RM6.40 yesterday.


This article appeared in The Edge Financial Daily, October 9, 2009.