Investment Highlights

• We maintain our HOLD recommendation on UMW Holdings (UMWH) with a marginally higher FV of RM5.89 (from RM5.88). This is based on a SOP valuation with an FY20F PE of 10x for its automotive segment.

• UMW Holdings (UMWH) recently announced that it has entered into a sales and purchase agreement with MCE Industries for the disposal of 8.25 acres of land in UMW’s High Value Manufacturing (HVM) Park.

• MCE Industries is a wholly-owned subsidiary of MCE Holdings Bhd, a public-listed company that designs, manufactures and supplies automotive electronics and mechatronics parts. It is also one of Malaysia’s leading OEM suppliers in the automotive industry.

• The land was sold for RM14.4mil cash (RM40 psf), which we believe to be a good deal for UMWH. The initial book value of the land was relatively cheap at RM2 psf, translating to about RM0.72mil. We estimate the gain on the disposal to be RM13.7mil. The group said that proceeds from the disposal will be used for future working capital. It also guided that the disposal will be completed with the sales proceeds recognised in 3QFY19.

• We are positive on this as it showed that a growing number of advanced manufacturing companies are setting up shop in UMW’s HVM Park, which currently houses UMW Aerospace and T7 Kilgour metal treatment plant. This is in line with the group’s long-term goal to develop the Serendah land into a high-value manufacturing park. So far, about 40 acres of the land have been taken up - 24 acres by UMW Aerospace, 7 acres by T7 Kilgour and 8.25 acres sold to MCE Industries.

• Separately, UMWH announced that its subsidiary UMW Advantech Sdn Bhd has signed a technology licence and assistance agreement with Aisin Industry Co Ltd to manufacture and supply carbon cannisters for Perodua Aruz from December 2019 onwards. This will contribute to Perodua’s strategic initiative to increase the localization of the Aruz, which has achieved more than 90%.

• We believe that this partnership could help the Aruz and other Perodua models to be more price competitive, which will be key in maintaining a healthy and robust sales volume. We deem this to be positive as Perodua is a 38%-associate of UMWH.

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

Source: AmInvest Research - 17 Jul 2019