KUALA LUMPUR: CIMB Equities Research has upgraded UMW Holdings Bhd from Reduce to Add with a higher target price after its proposed corporate exercise to exit the oil and gas business.It said on Friday the higher target price of RM5.10 compared with RM4.30 was now based on 12 times CY18 price-to-earnings (P/E), similar to its 10-year historical mean of 12 times and 80 sen for dividend valuation on UMW Oil and Gas.“We use P/E as it captures the stronger earnings recovery post de-merger. We see this exercise as a positive re-rating catalyst for the stock. Effectively, it will cease to be a shareholder of UMW-OG.The exercise will be followed by a progressive exit from non-listed oil and gas assets held by UMWH. Therefore, it has stripped out 50% contribution from UMW-OG in 2017 and 100% contribution from UMW-OG in FY18 to reflect the timing of the deal completion.“Hence, we project accelerating earnings recovery for UMWH starting in 2H17. The de-merger will also be positive for UMWH’s financial position as management projects to improve gearing ratio from 91% to 43%.“We agree with management’s decision to refocus on its core businesses as we see attractive growth prospects across these divisions.

Source: The Star January 20, 2017 00:24 UTC