Investment Highlights

• We maintain our BUY call on UMW Holdings (UMWH) with a higher SOP-derived fair value of RM4.06 (Exhibit 4), based on a FY21F PE of 10x for its motor segment.

• We raise our FY21–22F core net profit forecasts by 20–20% to account for higher Toyota sales volume assumptions.

• UMWH’s FY20 core net profit of RM284.9mil (predominantly adjusted for reversal of impairment on receivables of RM54.9mil; and loss on disposal of noncore assets of RM108.6mil) came in above expectations, beating our full-year forecasts and full-year consensus estimates by 95% and 90% respectively. FY20 core net profit was up 6% YoY.

• UMWH registered a FY20 revenue of RM9.6bil, which was a 19% YoY decrease. The poorer performance was largely attributed to: i) lower revenue contribution from the automotive segment; and ii) a smaller equipment segment contribution due to the MCO – which resulted in closures of dealerships, showrooms and manufacturing plants nationwide in 2QFY20.

• To recap, Toyota sold 58.5K units in FY20 (-15% YoY) vs. 69.1K units in FY19. Toyota’s market share in FY20 was 11.1%. For the automotive segment, the group registered a weaker FY20 revenue of RM7.5bil (-19% YoY) due to the lower number of vehicles sold. Sales and production volume were severely impacted by the MCO which took effect on 18 March, with gradual reopenings of dealerships starting from 13 May. Hence, the automotive segment’s FY20 net profit took a dip to RM204.6mil (-38% YoY).

• We noted a drop in FY20 associate earnings to RM204.1mil (-29% YoY) and we suspect that this was due to the weaker performance from Perodua. Perodua sold a total of 220.2K units in FY20 vs. 240.3K units in FY19 (-8% YoY) and we believe that the lower Perodua sales volume was a result of the nationwide MCO, although it was partially mitigated by the SST exemption.

• The M&E division registered a marginally lower FY20 revenue of RM918.3mil (-14% YoY) but a higher net profit of RM34.3mil (+12% YoY). Despite lower production and deliveries of fan cases in the aerospace segment, we believe the division’s improvement was due to: 1) costsaving initiatives; and 2) heightened operational efficiencies – which were achieved via economies of scale. The group guided that production of the Trent 7000 has commenced in late Sept 2020, with its first bulk of deliveries in October 2020.

• Key highlights from the analyst briefing:

1. We gather that the C-segment Corolla Cross SUV will make its debut next month (in March 2021) as a CBU model. Management guided that there is a CKD plan for the model, targeted for 4QFY21.
2. UMW Toyota has introduced its sales volume target for 2021 at 62.0K units. Note that Honda’s sales volume target is 80.0K units in 2021.
3. Management has guided that the aerospace division will face a bumpy journey in 2021, largely attributed to the down cycle of the global aviation industry due to the Covid-19 pandemic, which has led to a negative demand shock for plane parts, and these include fan casings. We understand that the demand has tumbled 20% YoY in 2020, and is expected to drop another 20% in 2021.
4. The mainstay models of Vios and Yaris CKDs will not be affected by the chip supply shortage, which has been causing a production slowdown globally. Meanwhile on the 38%-owned Perodua level, we gathered from various news sources that the Myvi, Aruz and Alza was impacted by the same issue, and that the production issue would linger on until March for the Myvi. No further information is available at the moment.

Source: AmInvest Research - 26 Feb 2021