PP 7767/09/2010(025354)

5 October 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
5 October
5 October
2010
2010
MARKET DATELINE

UMW Holdings Share Price

Fair Value
:
:
RM6.73
RM7.27
Recom : Market Perform
Naga 1 Gets Extended (Maintained)

Table 1 : Investment Statistics (UMW; Code: 4588) Bloomberg: UMWH MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA EV/EBITDA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009a 10,697.9 371.1 33.6 (35.8) 20.0 2.1 7.8 10.2 Net Cash 3.0
2010f 10,670.5 621.9 55.3 64.4 12.2 55.3 1.9 5.5 15.3 Net Cash 3.5
2011f 11,062.4 672.1 59.2 7.2 11.4 62.5 1.7 5.3 14.8 Net Cash 3.6
2012f 11,982.5 752.1 66.3 11.9 10.2 68.2 1.5 5.0 14.8 Net Cash 3.8
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Naga One contract gets extended. The company announced yesterday Issued Capital (m shares) 1,142.3
that its 85%-owned Naga One Semisubmersible rig (semisub) contract with Market Cap(RMm) 7,687.5
Daily Trading Vol (m shs) 3.9
Petronas Carigali S/B (PSCB) has been extended for another 5 years at a
52wk Price Range (RM) 5.90-6.95
total contract value of US$250m (RM770m). The previous contract (signed
Major Shareholders: (%)
in Jun-06) for twenty firm wells is expected to be completed by end of Skim ASB 43.7
2010, while the new one has yet to stipulate the number of new wells. EPF 16.9

♦ Per day charter rates significantly higher than previous contract. FYE Dec FY10 FY11 FY12
The new contract translates to a per day charter rate of US$136k, 63.1% EPS chg (%) - - -
higher than the previous US$84k guided for by management for the initial Var to Cons (%) (2.1) (5.2) (2.8)
contract. However, the rate is still below the market rate for semi-subs,
PE Band Chart
which based on Rigzone are within the range of US$300k-400k per day. The
significant discount could be due to the charter being a long-term one,
instead of the current short-term rolling one. PER = 19x
PER = 16x
♦ Positive on win. While the extension is unsurprising, its duration is longer PER = 13x
PER = 10x
than the expected 2-year timeline the management guided for. Given the
uncertainty that the division has faced thus far, the long-term charter is a
welcome change, albeit it being significantly below the average market rate,
as it will provide some stability to the division’s earnings.
Relative Performance To FBM KLCI
♦ Update on Naga Two and Three. For Naga Two, the company announced
that the rig has reached its destination at the Ujung Pangkah Field on 20- FBM KLCI
Sep, while the Technical Assistance Cooperation Agreement in relation to
the rig is expected to be concluded by Nov. In regards to Naga Three, it is
close to delivery. However, contract negotiations are still ongoing and
management hopes it can be chartered out by FY11. UMW Holdings

♦ Forecasts. We maintain our forecasts at this juncture, given that our

earnings estimates already incorporated around US$130k per day charter
rate from Naga One. In the near term, the oil and gas division is likely to be
weak, unless the company can turn around the other associates significantly
by FY11.

♦ Investment case. While we see value in UMW’s automotive and equipment

divisions, we believe the stock is close to fairly valued at this juncture as
the moderation in auto sales in 2HFY10 could spill-over to FY11 as well. We
will review our call on the stock should automotive sales prove to be Loong Kok Wen, CFA
stronger than our estimates. As such, although we are maintaining our fair (603) 92802239
loong.kok.wen@rhb.com.my
valuations at RM7.27/share, we have downgraded the stock to Market
Perform in our last strategy piece.

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 5 October 2010

Table 2: Average Day Rate for Semisubmersibles

Rig Type Average Day Rate

Drillship < 4000' WD $265,600.00

Drillship 4000'+ WD $422,873.43

Semisub < 1500' WD $300,278.57

Semisub 1500'+ WD $313,348.55
Semisub 4000'+ WD $401,474.36

Source: Rigzone

Table 3: UMW SOP Valuation

(RMm) Comments

Automotive 7,527.0 14x FY11 EPS

Heavy equipment 430.1 at 8x FY11 EPS

Manufacturing & 94.1 at 7x FY11 EPS
engineering
Oil & gas 672.1 At 10x FY11 EPS

Total 8,723.3

Add: cash 1,714.3

Less: debt (2,131.7)
Equity value 8,305.8

Issued shares (m) 1,142.2

Fair value (RM) 7.27
Source: RHBRI Estimates

Table 4. Earnings Forecasts Table 5. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F F12F

Turnover 10,697.9 10,670.5 11,062.4 11,982.5 Toyota TIV (k units) 89.7 91.3 97.3
Turnover growth (%) 7.6 8.6 9.6 10.6 Perodua TIV (k units) 195.1 196.8 202.3
Forex (RM:100JPY)* 3.57 3.56 3.52
EBITDA 920.3 1,330.5 1,368.1 1,521.9 Forex (RM:US$)* 3.30 3.20 3.15
EBITDA margin (%) 8.6 12.5 12.4 12.7
*average rate
Depreciation (168.9) (175.4) (180.0) (184.8)
EBIT 751.4 1,155.1 1,188.1 1,337.1
EBIT margin (%) 7.0 10.8 10.7 11.2

Net Interest (5.2) (23.4) (16.8) (15.4)

Associates 88.4 342.3 377.3 403.3

Pretax Profit 834.6 1,474.1 1,548.6 1,725.0

Pretax margin (%) 7.8 13.8 14.0 14.4
Tax (198.0) (368.5) (387.2) (431.3)
Minorities (265.5) (483.7) (489.4) (541.6)
Net Profit 371.1 621.9 672.1 752.1
Net Profit margin (%) 3.5 5.8 6.1 6.3

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate

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particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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