UMW HOLDINGS - The new NAP: Catalysing a super-cycle growth story

Date: 21/01/2014

Source  :  AMMB
Stock  :  UMW       Price Target  :  13.10      |      Price Call  :  HOLD
        Last Price  :  2.81      |      Upside/Downside  :  +10.29 (366.19%)

- UMW remains a HOLD but we raise our fair value to RM13.10/share (from RM11.70/share previously) as we rollover our valuations to end-FY14F and following earnings revisions in this report.

- While UMW benefits from having a very strong principal in Toyota Motor Corp to funnel it with models to qualify for the EEV program, there is little clarity on UMW’s strategy at this juncture.

- While UMW had indicated that it is trying to qualify its Camry Hybrid model for the program – which if approved, could allow its base Camry model to be priced more competitively given the common part benefits – we understand from channel checks that it has not been entirely approved for the EEV program yet. The Camry is estimated to account for 14% of Toyota TIV.

- Furthermore, UMW Toyota’s plant in Shah Alam has little room to be expanded beyond the 90K units/annum capacity currently (estimated to be running at 80%-90% utilisation), suggesting that UMW may need to invest in a new plant in order to become a full-fledged participant of the EEV program. This will likely entail some gestation period before it is reflected in earnings.

- For FY14F, we expect Toyota sales to rebound slightly to 102K units (+8.7% YoY) following a weak 2013; FY13F sales volume is estimated at 93,656 units (-7% YoY). The new Vios launched in October 2013 has now garnered 20,000 bookings versus management’s target of 3,000/month. However, the upcoming launch of the new Honda City, which may come in hybrid variants and qualify for EEV incentives, is likely to pose serious competition in the immediate-term.

- The new generation C-segment Altis to be launched this year (priced at RM114K-136K) will also see competition from the all new Mazda 3, which has been pre-qualified as an EEV model and will benefit from the accompanying duty incentives. The higher variant (2 litre) Mazda 3 is positioned in the core C-segment (competing head-on with the Altis) while a much cheaper 1.5 litre variant will be positioned within the B-segment price bracket (potentially giving the higher spec variants of the Vios a run for their money).

- On top of this, the strengthening USD will put a dent on earnings momentum in the near-term as UMW Toyota imports entirely in USD. We now model in USD:MYR rate at RM3.20 (versus RM3.10 previously), resulting in 3%-5% reductions in earnings over FY14F-15F. Every 1% change in USD impacts earnings by 3%.

Source: AmeSecurities

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UMW 2.81 +0.47 (20.09%) 7,274,500 

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