Investment Highlights

• We reiterate our BUY call on UMWH with a lower sum-ofparts (SOP)-derived fair value of RM4.70/share. Our FV implies FY23F PE of 14x, at parity to its 5-year mean. We retain our neutral 3-star ESG rating.

• UMWH’s FY22 core earnings missed expectations, coming in 13% below our forecast and 6% street’s. The shortfall was mainly due to lower-than-expected associate share of result from 38%-owned Perodua. We reduce our FY23FFY24F earnings marginally by 4%-5% to account for Perodua’s lower margin due to higher raw material cost. We also introduce FY25F earnings of RM412mil, premised on a 6% YoY revenue growth and stable pretax margin of 5%.

• YoY, FY22 core earnings of RM422mil rocketed 63% as all operating segments outperformed, contributing to a 43% growth in revenue following the gradual recovery in the economy. Notably, automotive revenue grew 47% YoY due to higher vehicle sales.

• Equipment division also delivered higher revenue (+16% YoY) on better sales from local and overseas markets. In line with higher vehicle sales, manufacturing & engineering segment (M&E) posted better revenues (+36% YoY) on higher demand from auto component & lubricant subsegments.

• Likewise, 4QFY22 topline surged 20% YoY on higher contributions across all business divisions. Nevertheless, 4QFY22 core profit plunged by 54% YoY on lower associate share of profit (-58% YoY) from Perodua.

• QoQ, UWMH posted an increment of 8% in 4QFY22 topline, mainly supported by higher car deliveries in automotive (+8%) and fan case sales in M&E (+10%) businesses. However, lower sequential earnings growth in 4QFY22 (+5% QoQ) was caused by higher operating expenses (+9% QoQ) in equipment segment alongside Perodua’s lower share of profit (-7% QoQ).

• We continue to like UMWH due to: 1) robust order book of more than 270,000 units for both Perodua and Toyota, 2) continuous new launches – Toyota has lined up all-new Vios in March roll-out and possibly another 4 new models. M&E segment started to pick up pace since last year on strong orders from all sub-segments with sales exceeding pre-pandemic levels (+24% YoY).

• The company is currently trading at an attractive FY23F PE of 12x, lower than its 5-year peak of 14x while offering a decent dividend yield of 3%.

Source: AmInvest Research - 28 Feb 2023