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Company Update – UMW (REDUCE, downgrade) - Time to take profit on this super performer




Affin Hwang Investment Bank Bhd


19 Mar 2013





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Investment thesis The stock has outperformed the KLCI by 67% in 2012. The strong share price trajectory was driven by: (1) record 2012 Toyota sales of 105K units, (2) an improvement in the Group’s FY12 O&G and equipment earnings; and (3) potential listing of the O&G division in 2013. These catalysts helped to propel share price further this year, with the stock outperforming the broader market by 16% YTD. Trading at 14.3x CY13 EPS (above its 5-year historical average PER of 12x), we opine the stock is now fully valued as the risk-reward is less compelling given: (1) potential earnings headwind as the automotive sector faces intense competition; and (2) the listing of the O&G division is seen to be priced in - at an estimated market capitalisation of RM1.5bn. Since the beginning of the year, the improving domestic O&G prospects saw investors adding RM1.5bn to UMW’s market capitalisation of RM15.5bn. All in, we opine that our street-centric earnings is already embedded with a positive analyst bias and as such, there may be limited scope for potential earnings surprises in FY13.

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