UMW Holdings Bhd (Oct 15, RM6)
BUY: UMW has established a 60:40 joint venture with Dah Chong Hong Holdings Ltd to manufacture and process lubricants in China. The JV will be known as Lubritech China Ltd (LCL), which will build a plant in Xinhui, Guangdong, to manufacture and process lubricants. The plant, which will cost an estimated US$16.5 million (RM58 million), will have an initial output capacity of 50 million litres a year. LCL expects to increase output to 100 million litres in three years.
Construction of the plant will start at year-end and operations are expected to begin by September next year. The venture is expected to contribute PBT of US$20 million to US$30 million annually to LCL in five years. As LCL will only begin operations in late 3Q2009, we are keeping our earnings forecast unchanged for now. Earnings impact is likely to be small in FY2010 (FY ending Dec 31), given that UMW's share of PBT in LCL is only US$12 million to US$18 million in five years.
UMW is expected to meet its Toyota sales target of 92,000 units for 2008. Additionally, Perodua is optimistic of selling 172,000 units this year, having already sold 131,000 units as at end-September. We reiterate our "buy" call on UMW with an unchanged target price of RM7.25 based on sum-of-parts valuation. — ECM Libra (Oct 13)