Investment Highlights

• We maintain our HOLD call on UMW Holdings (UMWH) with an unchanged SOP-derived FV of RM5.50 based on an FY20F PE of 10x for its motor segment.

• UMWH’s 1H19 core net profit of RM199.0mil was in line with our expectation, accounting for 49% and 45% of our forecasts and consensus respectively. Overall, core earnings fell by 3% YoY from RM205.1mil in 1H18.

• UMWH registered a 1H19 revenue of RM2.77bil, which was an 8% YoY increase. The better performance was highly attributed to: i) higher revenue contribution from the automotive segment and ii) higher fan cases delivered by the aerospace unit in the M&E segment.

• To recap, Toyota sold 31.3K units in 1H19 (-1.4% YoY) vs. 31.7K units in 1H18. The marginal decline was due to the ramped-up sales volume numbers in June 2018, where Toyota sold an impressive 11.5K units in that month attributed to the introduction of the tax holidays. Toyota’s market share in 1H19 was 10.6%. The group targets to sell 30.0K units of Vios and 10.0K units of the new Yaris in 2019.

• For the automotive segment, the group registered a higher 1H19 revenue of RM4.55 bil (+7% YoY) due to the increased demands from the sales of auto parts. However, 1H19 PBT was only marginally higher (+3% YoY) compared to 1H18 due to the additional depreciation expense from the Bukit Raja plant, which was mitigated by increased contributions from associate earnings.

• We noted an impressive increase in 1H19 associate earnings of RM141.8mil (+28% YoY) mainly attributed to better performance from Perodua. Perodua sold a total of 121.8K units in 1H19 vs. 117.1K units in 1H18 (+4% YoY). The strong sales performance was buoyed by the sales of the new Aruz and healthy demand for all its other models.

• The M&E segment registered a higher 1H19 revenue of RM481.6 mil (+39% YoY) and a net profit of RM3.5mil, compared to a 1H18 net loss of RM15.4mil. This was highly attributed to higher deliveries of fan cases in the aerospace segment and increased sales from the Auto Component business. Going forward in 2H19, we are also expecting increased production and deliveries of fan cases and the commencement of Trent 7000 engines in FY20.

• 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 Myvi and the recent introduction of the Aruz. Also, growth will be dependent on its continued improvement in its M&E segment as the aerospace unit gains momentum with an eye to break even in 2HFY20.

Source: AmInvest Research - 28 Aug 2019