Investment Highlights

• We retain our BUY call on UMW Holdings (UMWH) with higher sum-of-parts (SOP) derived fair value of RM4.00/share (from RM3.90/share). We revise upwards 2022F–23F earnings by 3–4% to reflect a higher associate contribution by Perodua. Moving forward, all its three divisions are set to benefit from the economic recovery as the world shifts towards the endemic phase of Covid-19.

• UMW’s 4Q21 results exceeded our and street’s expectations with a core net profit of RM228.3mil (3Q21: net loss of RM48.1mil, +10% YoY), bringing 2021 core net profit to RM259.2mil (-9% YoY). The positive variance was mainly attributed to RM140mil deferred tax assets related to an investment tax allowance recognized during the quarter and the strong associate contribution from Perodua. 2021’s RM1,106.8mil revenue which met our expectation, accounting for 99% of our estimate. A final dividend of 5.8 sen was declared which translates to a 25% payout ratio of 2021 EPS.

• The automotive division is the quarter’s star performer, propelling the group’s profitability with a PBT of RM269.2mil (+882% QoQ, +41% YoY), fuelled by higher sales volume from Toyota and Perodua. The division continues to be the key earnings contributor of the group; it yields 79% of the group’s PBT in 2021. Notably, Toyota has overtaken Honda as the top non-national brand in 2021. The success could be attributed to the resiliency of UMW Toyota’s supply chain in navigating through disruptions caused by the pandemic.

• Other divisions. The equipment segment posted sequential improvement (PBT: +19% QoQ) with all its operating countries recording stronger revenue following the reopening of the economy, except for Myanmar. PBT in the manufacturing & engineering division rose 43% QoQ following all three subsegments benefiting from the ease of movement restrictions.

• The higher raw materials price likely will be borne by the principal, up to a certain threshold. However, should the input costs continue to increase and surpass this threshold, UMW and the principal may revise the pricing structure which could result in a redistribution of the additional costs along the supply chain, from the principal to end consumers. At the current level, UMW’s margin remains unaffected.

• Outlook. Demand for Toyota and Perodua cars remains robust, indicated by the four months’ worth of backlog orders. The new model launches i.e., Perodua Alza and locally assembled Toyota Corolla Cross will provide additional booster to 2022 sales. The rising commodity price will benefit the heavy equipment business while the aerospace unit set to improve with the recovery of the airline industry.

Source: AmInvest Research - 28 Feb 2022