Investment Highlights

• We maintain HOLD on UMW Holdings (UMWH) with a lower SOP-based FV of RM5.50/share (from RM5.89/share). This is based on an FY20F PE of 10x for its automotive segment.

• We trim our FY19–21 projections by 18%, 17% and 15% respectively after accounting for the additional depreciation expense from the new Bukit Raja Plant which commenced operation in January this year. The plant currently has a maximum capacity of 50K units/year, and the utilization rate has been healthy at 80%. It was designed specifically to produce smaller types of vehicles up to the C-segment. Presently, it is producing the new Vios and Yaris.

• In our recent meeting with the UMW Group, we understand that there will be a new passenger vehicle to be launched in 4QFY19. In Toyota’s current passenger vehicles’ product mix, the new Vios, Yaris and Camry were only recently launched in 2019. We believe the only model left from the product mix that is ripe for a new look is the Toyota Corolla which is likely to be CBU units from Thailand.

• Outlook wise, we are apprehensive on the prospects of the group’s automotive division for FY20F. This is due to the recent flurry of launches in new models for main passenger vehicles in FY19 (i.e. the Vios, Yaris and Corolla Altis). Hence, we are concerned on the potentially lack of new launches in FY20 compared with its Japanese counterparts in the local automotive space which could affect its sales volume ahead. For example, its direct competitor Honda is expected to release its long-awaited all-new Honda City, a close rival to the Vios alongside with other newer models of passenger vehicles. We opine that Toyota should have spread out the timing of their new model launches. The current strategy of focusing on the introduction of most of their new models in FY19 will leave little room for excitement in its FY20 sales.

• 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 be 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 - 20 Aug 2019