Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 14 Oct 2019, 11:30 AM


UMW Holdings Bhd - Expecting Weak 4Q18 on Muted Demand

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Due to be released by end-February, we expect its 4Q18 CNP to be in the range of RM52-60m (compared to RM137.7m in 3Q18 and Core Loss of RM67.1m in 4Q17). We attributed this to weaker UMW Toyota Motor’s 4Q18 sales of 13,482 units (- 40% QoQ, -36% YoY), that was cushioned by stronger 38%- owned associates, Perodua’s sales at 59,040 units (+16% QoQ, +11% YoY). No changes to our FY18-19E CNPs. Maintain MP with unchanged TP of RM5.80.

Weaker 4Q18 is expected on muted demand. We expect its 4Q18 CNP to come between RM52-60m (compared to RM137.7m in 3Q18 and Core Loss of RM67.1m in 4Q17); due to be released by end-February 2019. Our assumption for the 4Q18 CNP is based on vehicles’ average selling price for the past three quarters, while expecting flat growth in other segments. We attributed this to the weaker UMW Toyota Motor’s 4Q18 sales of 13,482 units (-40% QoQ, -36% YoY) as the demand has been tapering off after the zero-rated tax holiday (compared to one-month historical high in June 2018 at 11.4k units sold), especially for its outgoing Toyota Vios as consumers held back purchases for the replacement models of the all-new Toyota Vios (priced at RM77-RM87k). The negative impact was, however, cushioned by stronger 38%-owned Perodua’s sales at 59,040 units (+16% QoQ, +11% YoY), as deliveries for the all-new Perodua Myvi recovered (as at 31st Dec 2018, 82k units were delivered from 117k backlog booking). This implied a FY18 CNP in the range of RM376.2-384.2m (compared to Core Loss of RM218.9m in FY17), which is within our full-year estimate in the range of 100-102%; however, this is below consensus expectations at 84-86%. Note that, for FY18, UMW Toyota Motor sales was 66,561 units (- 4% YoY), which was below management’s target of 72,000 units, whereas, Perodua’s sales at 227,243 units (+11% YoY), surpassed the management's target of 209,000 units.

Automotive and Equipment to boost products range. UMW Toyota is targeting a better year in 2019, with a target of 75k units (+15%) for Toyota and Lexus models. On 24th January 2019, UMW has launched the all-new Toyota Vios and will be launching two new models, of which we foresee is the Toyota Yaris Hatchback (production in 2H19) and one undisclosed new model, whereas, the all-new Toyota CH-R CKD will be rolled out by 2H19/1H20. Furthermore, representing the executive line, all-new Toyota Camry has been launched at KLIMS 2018. Elsewhere, Perodua has surpassed its 2018 target and targeting a stronger year in 2019 at 231k (+1.7%), with extra torque from the all-new Perodua ARUZ (current booking at 8k units, c.4k delivered). The new Bukit Raja plant, which recently rolled out the first batch of all-new Toyota Vios, can push 50k units in one shift with automation of more than c.70% compared with its Shah Alam plant, which can only push 75k units on two shifts at c.30% automation (will be reduced to one shift post-Bukit Raja full operation, to 30k units). For Equipment, the group will continue to leverage on partners’ (KOMATSU & TICO) strengths to boost product range and market penetration, while, expanding total solutions services.

UMW Aerospace to hit breakeven level by FY20. UMW Aerospace, under the M&E segment, is expected to trim its losses to c.RM20m level in FY18/FY19 (from losses of c.RM60m in FY17) before reaching breakeven level in FY20 considering that some front-loaded investments need to be amortised. UMW Aerospace has delivered 6 fan cases for FY17 and additionally, expects to ramp up its production to 80/100 fan cases for 2018/2019 and 150 fan cases by 2020 before hitting full capacity of 250 fan cases by 2021.

Maintain MARKET PERFORM with an unchanged Target Price of RM5.80 based on 17x FY19E EPS, which is the 5-year historical mean PER. Risks to our call include: (i) lower-than-expected car sales volume, and (ii) unfavourable forex.

Source: Kenanga Research - 12 Feb 2019

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