Investment Highlights

• We maintain our HOLD call on UMW Holdings (UMWH) with a higher FV of RM5.88 (from RM5.49 previously). This is based on SOP valuation after rolling over our valuation to FY20 with a PE of 10x for its motor segment.

• UMWH’s 1Q19 core net profit of RM86.7mil was broadly in line with our expectations, accounting for 18% and 17% of our and consensus forecast respectively. We expect that the group’s core earnings to improve in the next few quarters underpinned by deliveries of the new Yaris which was launched in mid-April and the new 2019 Vios. Also, we anticipate the group’s aerospace unit to deliver more fan cases in the subsequent quarters ahead moving towards breaking even.

• UMWH registered a revenue of RM2.77bil, which was an impressive 15% YoY increase. The improved performance was contributed by a higher number of vehicles sold by its automotive segment and the increase in fan cases delivered by the aerospace unit in the M&E segment. All three core businesses achieved higher revenue on a YoY basis.

• For the automotive segment, the group posted a higher revenue of RM2.16bil (+15% YoY) due to the overwhelming response for the new Vios. However, the PBT was marginally lower (-1% YoY) due to higher depreciation from the new Bukit Raja plant, which was partially offset by the better performance from its associate, Perodua.

• Toyota sold 13.8K units in 1Q19 (+9% YoY) vs. 12.7K units in 1Q18. Its market share in 1Q19, including the Lexus, was 9.7%. The group targets to sell 30.0K units of the new Vios and 10K units of the new Yaris in 2019.

• Meanwhile, the group’s equipment segment recorded a revenue of RM382.8 mil (+3% YoY) and a PBT of RM42.2 mil (-6% YoY). The lower PBT margin was due to competitive pricing for both the heavy equipment and industrial equipment businesses.

• The M&E segment registered a higher revenue of RM237.1 mil (+41% YoY), contributed by the aerospace unit as a result of higher delivery of fan cases and stronger sales from the auto Component business. The segment swung into the black with a PBT of RM2.3mil in 1Q19, from a loss of RM2.9mil in 1Q18.

• We believe that the growth this year will rely heavily on a higher sales volume for Toyota, the continued support from Perodua’s strong sales of the Myvi and the recent introduction of the Aruz. It will also depend on the continued improvement in its M&E segment as the aerospace unit gains momentum with an eye to break even in 2HFY20.

Source: AmInvest Research - 23 May 2019