Investment Highlights

• We reiterate our BUY call on UMWH with an unchanged sum-of-parts (SOP)-derived fair value of RM4.65/share. Our FV implies FY23F PE of 13.9x, at parity to its 5-year mean. We retain our neutral 3-star ESG rating.

• UMWH’s 9MFY22 core net profit (CNP) of RM316mil came in largely within our expectation but above consensus, accounting for 77% of our FY22F net profit and 81% of street’s. Given that the group is operating at full capacity, we anticipate 4QFY22 performance to be similar to 3QFY22. As such, we maintain our forecast assumptions.

• YoY, the group’s 9MFY22 revenue rocketed 54% to RM11,439mil as automotive operation rose 61% to RM9,615mil, followed by manufacturing & engineering operation (+41%) at RM706mil and equipment operation (+19%) at RM1,133mil.

• Accordingly, 9MFY22 CNP surged 10.2x YoY as automotive net profit jumped 2.6x YoY while equipment rose 45% YoY. It is also noteworthy that UMWH’s manufacturing & engineering operation turned around in 9MFY22 with a net profit of RM13mil vs. a net loss of RM9mil in 9MFY21.

• 3QFY22 topline surged 2.0x YoY due to a rebound in automotive (+2.2x) at RM3,428mil, manufacturing & engineering (+2.3x) at RM252mil and equipment (+25%) at RM394mil.

• The huge quarterly improvements were mainly due to a low base effect last year affected by lockdowns. Consequently, 3QFY22 CNP swung around to RM101mil from a loss of RM48mil in 3QFY21. This was primarily fueled by an upswing in 3QFY22 automotive CNP by 13.1x YoY.

• During the quarter under review, the group’s associates were also back into the black with contribution of RM73mil as compared to losses of RM6mil in 3QFY21.

• QoQ, UWMH posted an increment of 9% in 3QFY22 topline, mainly supported by improvements across all operations – automotive (+10%), equipment (+8%) and manufacturing/engineering (+11%). However, lower forex-impacted associate pretax (-26% QoQ) coupled with higher effective tax rate (+6.6%-point QoQ) caused 3QFY22 bottomline to drop 6% QoQ.

• We are positive on UMWH’s near-to-medium term outlook due to: 1) robust sales from Perodua and Toyota; and 2) continuous model roll-out pipeline.

• The company is currently trading at an attractive FY23F PE of 10x, a few notches lower than its 5-year average of 13.5x while offering a decent dividend yield of 3%.

Source: AmInvest Research - 30 Nov 2022