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Company Update – UMW (REDUCE, maintain) - Headwinds in automotive segment




Affin Hwang Investment Bank Bhd


05 Dec 2013





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Investment thesis We reiterate our REDUCE rating on the stock with a lower TP of RM11.35/share. Despite the recent pullback in share price, we opine valuations are still unwarranted as we see the Group moving into a period of operational consolidation – suggesting little scope for earnings upside over the next twelve months. Street estimates are toppish, we opine. Importantly, we believe the listing of UMW O&G (in November 2013) served to clearly demarcate the Group’s high growth segment. Thus trailing hereon is the underlying performance of the Group’s automotive segment – which accounts for 71% of the Group’s FY14 EPS. The automotive segment is expected to face headwinds from: (1) margin compression as a result of intense competition with the rollout of aggressive product pipeline from other Japanese, Korean and European marques; and (2) consumer discretionary spending likely to be crimped by higher cost of living – rising inflationary pressure from higher fuel costs and electricity tariff as well as the implementation of GST in April 2015.

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