UMW Holdings Bhd (July 18, RM9.97)
Maintain add at target price of RM10.60: Business Times reported that Permodalan Nasional Bhd (PNB), through its investee company UMW, is planning to sell three firms, U-Travelwide Sdn Bhd, U-Insurance Sdn Bhd and Inobel Sdn Bhd to qualified bumiputera entrepreneurs.

The offer for sale was advertised in Business Times yesterday. At a Bumiputera Agenda Action Council meeting on Feb 9, the prime minister announced that PNB would sell five assets to bumiputera companies. On May 31, PNB announced plans for the sale of its first non-core company, FEC Cables (M) Sdn Bhd.

The disposals are part of the plan by Unit Peneraju Agenda Bumiputera (Teraju), a unit under the Prime Minister’s Department, to grow and enhance bumiputera entrepreneurship.

The above news does not impact our core earnings and realisable net asset value (RNAV) calculation for UMW. As a diversified conglomerate, UMW would have a hand in a number of business ventures (both new and old). We view the above divestment of assets as part of the group’s core business rationalisation.

We maintain our “add” call on UMW with an unchanged RM10.60 RNAV-based target price. In our recent strategy note (published on Monday titled Elusive Calm), we raised our target price for UMW from RM9.85 to RM10.60 per share after valuing the group’s oil and gas (O&G) division on 10 times forward earnings (previously eight times forward earnings).

Our goal is to remain ahead of the curve and capture UMW’s O&G prospects and growing earnings visibility. The group’s 51% stake in Toyota Malaysia will help drive earnings forward, given a strong product pipeline and cost discipline, and provide scope for earnings and dividend upside. — Affin Investment Bank, July 18.

This article appeared in The Edge Financial Daily on July 19, 2012.