Tuesday, 24 November 2009

Hong Leong raises EPS forecast for UMW

Hong Leong raises EPS forecast for UMW
Written by Chong Jin Hun
Monday, 23 November 2009 14:55

KUALA LUMPUR: Hong Leong Investment Bank Bhd has raised its earnings per share forecast for UMW HOLDINGS BHD [] by up to 6% in financial years ending December 2009 and 2010. This is in anticipation that a recovering economic landscape will result in better car sales for the company.

The franchise holder of Toyota cars in Malaysia is also expected to register better financials against the backdrop of a weakening US dollar, besides lower advertising and promotion expenses.

"Higher consumer spending will lift auto earnings and UMW will see margin expansion from depreciating USD," Hong Leong analyst Jason Saw Koon Khim wrote in a note to clients today.

Saw has also upgraded his recommendation for UMW shares from Sell to Hold with a new target price of RM6.90 based on a higher price to earnings ratio (PER) of 15 times FY10 earnings.

The stock currently trades at a PER of 14 times FY10 earnings compared to FBM KLCI's 15 times, and pure auto stocks's seven times to 12 times.

The valuation premium of UMW compared to pure auto stocks is deemed justified by virtue of UMW's status as a big-cap entity, and the company's diversified operations.

"We think (UMW's) share price has fully priced in the earnings recovery as the stock’s PER valuation has expanded from 11 times to 14 times FY10 earnings."


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