Investment Highlights

• We maintain HOLD on UMW Holdings (UMWH) with a lower SOP-derived RM2.40 fair value (from RM2.70 previously), based on an FY21F PE of 10x for its motor segment.

• We cut our UMWH’s FY20–21F core net profit forecast by 42% and 17% respectively to account for: i) lower revenue contribution for the group’s heavy equipment division; and ii) lower Toyota sales volume assumptions due to the delay in new model launches.

• UMWH’s 1H20 core net profit of RM15.6mil was below our expectations, accounting for 9% of both ours and consensus full-year forecast and consensus respectively. 1H20 core net profit plunged 90% YoY.

• UMWH registered a 1H20 revenue of RM3.6bil, which was a 36% YoY decrease. The poorer performance was attributed to: i) lower revenue contribution from the automotive segment; and ii) lower equipment segment contribution due to the MCO, which resulted in closures of dealerships, showrooms and manufacturing plants nationwide.

• To recap, Toyota sold 18.2K units in 1H20 (-42% YoY) vs. 31.3K units in 1H19. Toyota’s market share in 1H20 was 10.6%. The company confirmed during an analyst briefing that 2 new CKD launches in 2020 will be pushed back to 2021. The group also hinted that one of the new launches will be open for bookings in December 2020, with its official launch in 2021. We think that both models would be SUVs.

• For the automotive segment, the group registered a lower 1H20 revenue of RM1.6bil (-27% YoY) due to the lower number of vehicles sold in the quarter. Sales in March were impacted by the MCO which took effect on 18 March, with gradual reopenings of dealerships starting 13 May. The automotive segment’s 1H20 net profit took a massive dive to RM12.0mil (-96% YoY).

• We noted a drop in 1H20 associate earnings of RM2.2mil (- 98% YoY) and we suspect that this was due to the weaker performance from Perodua. Perodua sold a total of 74.2K units in 1H20 vs. 121.8K units in 1H19 (-39% YoY) and we believe that the lower Perodua sales volume was a result of the nationwide MCO.

• UMWH’s only saving grace for the quarter was the M&E segment. The division registered a lower 1H20 revenue of RM431.9mil (-10% YoY) but a higher net profit of RM14.3mil (+306% YoY). This was highly attributed to higher production of fan cases in the aerospace segment and the group’s measures to improve margins through cost containment measures. The group further guided that production of the Trent 7000 is scheduled to commence in 4Q2020, with its first bulk of deliveries to be executed in October 2020.

Source: AmInvest Research - 28 Aug 2020