Investment Highlights

• Maintain BUY on UMW Holdings (UMWH) with a slightly higher sum-of-parts (SOP) derived fair value of RM4.65/share (from RM4.60/share) after rolling forward our valuation base year to FY23F from FY22F. Our FV implies FY23 PE of 13.9x, near the stock’s 4-year mean. No change in our neutral 3-star ESG rating.

• UMWH’s 1HFY22 core earnings of RM215mil exceeded expectations, accounting for 58% of our previous FY22F earnings and 63% of consensus. As a comparison, 1H accounted for 40%–54% of pre-pandemic FY17–FY19 core earnings.

• The positive variance was mainly attributed to stronger-thanexpected earnings contribution from the automotive division. Hence we increase the FY22 earnings forecast by 11% after raising the automotive division’s sales (Exhibit 4) and margin assumptions. However, we trim FY23F–24F earnings by 3–4% to reflect a lower margin due to a weaker MYR assumption of RM4.20/US$1 vs. RM4.05/US$1 previously.

• 2QFY22 core net profit of RM107mil slid 1% QoQ but turned around from a loss of RM11mil in 2QFY21. The automotive division’s PBT was largely sustained at RM203mil (-1% QoQ), supported by stronger sales volume from Toyota (+5% QoQ) and Perodua (+7% QoQ).

• The automotive division’s PBT margin (after stripping out associate contribution) declined marginally (-0.2% point QoQ) as price hikes and cost-savings exercises managed to mostly offset the impact of a stronger US dollar against the MYR.

• Given the robust demand (60,000 bookings to date) and easing supply chain disruptions, UMW Toyota revised upwards its 2022F sales target to 80,000 from 73,000 units. Currently, both of its Bukit Raja and Shah Alam plants are running at full capacity to fulfil outstanding orders.

• Meanwhile, Perodua’s sales are expected to be underpinned by its robust order book (>240,000 bookings as of end-July), including deliveries of the all-new Perodua Alza which received a positive response from consumers after collecting 39,000 bookings to date.

• For UMWH’s other businesses, both the equipment and manufacturing/engineering segments posted sequential PBT improvement in 2QFY22 despite recording lower revenue as the group’s cost-saving initiatives bore fruit. The group also recognised revenue from the sale of Serendah industrial plots which helped to narrow losses of its “others” segment.

• The stock currently trades at an undemanding FY23F PE of 9x vs. its 4-year average of 14x.

Source: AmInvest Research - 29 Aug 2022