UMW actively seeking value-enhancing acquisitions

PETALING JAYA: UMW Holdings Bhd, which has turned net-cash post the listing of UMW Oil and Gas Corp Bhd is actively looking for value-enhancing acquisitions and new investments to further expand its existing businesses, said Maybank IB Research.
As at end first quarter of 2014, the research firm said UMW sits on net cash of RM423 million or 36 sen a share.
"Management guided that they are looking at a few potential investments but that it is premature to make any announcements," the research firm said in a note yesterday.
Maybank IB Research has maintained buy call on UMW and raised target price to RM13.82 after removing the previously ascribed 10% discount to account for UMW's earnings recovery prospects.
It said earnings set to recover in the auto and equipment segments from stronger orders while oil and gas segment remains robust with new rigs deliveries.
Due to stronger vehicles sales in the first half of 2014, it said UMW has raised its 2014 internal vehicles sales target for Toyota and Lexus to 100,000 units.
"We see further upside to UMW's revised internal target given that second half is seasonally stronger due to Hari Raya and year-end promotions," it said.
As for Perodua, its new state-of-the-art manufacturing plant entering full scale production by end 2014, Perodua will be able to raise its production capacity to up to 400,000 units per annum from 200,000 units now thus enabling Perodua to be a regional production hub for Daihatsu vehicles.
"We expect overall utilisation for Perodua's two plants to pick up quickly due to strong demand for Daihatsu vehicles in Indonesia and potential contract assembly works from Toyota Malaysia," it said.
"We also do not discount the possibility of contract assembly works from Toyota Malaysia given bottleneck concerns over UMW's plant, which is currently utilised up to 95%. Toyota had awarded contract assembly to Perodua for the Avanza back in 2004," it added.
The research firm said UMW will continue to assess the viability of its non-core oil and gas businesses such as manufacturing of oil country tubular goods (OCTG) and line pipes, onshore drilling, and oilfield services before considering further divestments.
It said while this division is expected to remain loss-making, the amount is expected to be significantly less going forward.