Saturday, August 21, 2010

My one laggard pick - UMW(RM 6.41)

This is a pure trading pick. So, pandai pandailah take care when things wobble especially external environments have been volatile.

MELBOURNE (Reuters) - Australia's two major parties wooed independent lawmakers on Sunday after an inconclusive election left the nation facing its first hung parliament since 1940 and set financial markets up for a sharp sell-off.

The Australian dollar and shares are likely to slide when trading resumes on Monday, analysts said, with the vote count threatening to drag on for days and both the ruling Labour party and opposition seemingly unable to win a majority.

"The uncertainty is going to be a real killer to the financial markets," said economist Craig James of Commsec, suggesting the local currency could fall a cent or more.

With 78 percent of votes counted, a hung parliament looked likely, with two possible scenarios for minority government: a conservative administration backed by rural independents or a Labour government backed by one or two Green or green-minded MPs.

I'm posting this ahead because I will be on the road for a few days.

UMW has been lagging very badly - way behind stocks like Tan Chong, Proton, MBMR. OMG, lagging behind Proton? Perhaps most people don't see it as an automotive stock? Again suffering from conglomerate discount?

If you look at the segmental results, the automotive segment is the real money spinner. It accounts for 96% of the pre-tax results.

What is so valuable in the automotive division? Short answer - great brands that it represents i.e. Toyota and Perodua. They command about 47% market share(30 June 2010). Long answer, I can write a long easy but it's not my style.

I used to bet that their O & G will contribute a significant chunk of profits to UMW. Unfortunately, it has fallen apart. Their oil division sufferred lack of expoloration activities and delayed in NAGA 2 oil rig. Their associated company in China has been slapped with higher duties on its piping export to the US market. But despite of so many Murphies running all over the place, I still think it will contribute solidly to the group.

Stronger Ringgit and automotive re-rating will be the possible catalysts. One of old catalysts was spinning of the O & G unit by listing them but it has encountered a number of false starts. So I would drop this listing catalyst for the short term.

Some fundamentals. Net cash, 13-15% ROE on this large conglomerate with RM 12 billion revenue is very respectable and 6% dividend yield give us sufficient margin of safety. It has a long list of respectable shareholders but only the summary is shown here.

Two price points to watch - KLCI 1450 and UMW previous All time highs $ 7.80. Failing to breakout from either one of these points will be the time to take profit.

Disclosure : This stock used to make me a lot of money, serious money but I have no fresh position after I sold it off in 2008.

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