Investment Highlights

• We maintain our HOLD call on UMW Holdings (UMWH) with a higher SOP-derived FV of RM2.70 (from RM2.56 previously) based on a rolled-over FY21F PE of 10x for its motor segment.

• We cut UMWH’s FY20F core net profit forecast by 40% after tweaking our sales volume assumptions lower and reducing our estimate for the revenue contribution from the equipment division. We make no changes to our FY21– 22F earnings estimates.

• UMWH’s 1Q20 core net profit of RM44.8mil (-42.0% YoY) was below our expectations, accounting for 15% and 21% of our full-year forecast and consensus respectively.

• UMWH registered a 1Q20 revenue of RM2.1bil, which was a 24% YoY decrease. The poorer performance was attributed to: i) lower revenue contribution from the automotive segment; and ii) weaker contribution from the equipment segment due to the intensified pricing competition with its competitors as guided by the group.

• To recap, Toyota sold 10.4K units in 1Q20 (-24% YoY) vs. 13.7K units in 1Q19. Toyota’s market share in 1Q20 was 9.9%. The company confirmed during an analyst briefing that there will be 3 more new SUV launches in 2020 after the recent debut of the all-new Lexus UX200. Channel checks have indicated that the next one will be the Toyota RAV4 CBU while the subsequent two SUV launches will be CKD models.

• For the automotive segment, the group registered a lower 1Q20 revenue of RM1.6bil (-27% YoY) due to the lower number of vehicles sold in the quarter. Sales in March were impacted by the movement control order (MCO) which took effect on 18 March 2020. The automotive segment’s net profit tumbled 48% YoY attributed largely to lower contribution from associates.

• We believe that the drop in 1Q20 associate earnings of RM29.2mil (-56%% YoY) was due to the weaker performance from Perodua. Perodua sold 45.0K units in 1Q20 vs. 60.7K units in 1Q19 (-26% YoY). The lower Perodua sales volume was likely attributed to the MCO – which shuttered all dealerships and showrooms.

• UMWH’s only saving grace for the quarter was the M&E segment. The division registered a higher 1Q20 revenue of RM248.5bil (+5% YoY) and a net profit of RM6.5mil, compared to a 1Q19 net loss of RM3.2mil. This was largely contributed by higher deliveries of fan cases in the aerospace segment and the group’s measures to improve margins through cost containment measures. The group has further guided that the production of Trent 7000 is scheduled to commence in 4Q2020.

Source: AmInvest Research - 16 Jun 2020