Investment Highlights

• We reiterate BUY call on UMWH with a higher sum-of-parts  (SOP)-derived fair value (FV) of RM4.75/share (from  RM4.70/share previously). Our FV implies FY23F PE of 13x,  at parity to its 5-year mean. We retain our neutral 3-star ESG  rating.

• 1QFY23 core earnings beat expectations, accounting for 34% of both our FY23F net profit and streets’. The positive  variance was due to stronger-than-expected earnings  contribution from the automotive and equipment divisions.  The sequentially higher earnings were mainly due to an increased share of profit from associates. 

• Hence, we raised FY23F-FY25F earnings by 7% to account  for higher contributions from Perodua and increased  FY23F-FY25F sales assumption for Toyota cars to  93,000/94,000/94,000 units from 80,000/85,000/85,000 units  previously. UMWH did not declare any dividend during the  quarter under review, as expected.

• YoY, 1QFY23 revenue of RM4,380mil rose 20% with all  segments outperforming. Consequently, 1QFY23 core  earnings of RM135mil surged by 24% YoY.

• Automotive revenue grew 18% YoY driven by higher vehicle  sales. The group sold 25,219 (+12% YoY) Toyota cars  during the reporting quarter. On the other hand, the  equipment segment grew 17% YoY due to encouraging  demand from both local and overseas markets. Meanwhile, the manufacturing & engineering segment (M&E) division rose 43% YoY with all sub-segments, especially lubricants  posting higher sales volume (+14% YoY).

• On a side note, management indicated that aerospace  segment managed to maintain sales momentum from  4QFY22 as more fan cases were delivered (+30% QoQ).

• QoQ, topline grew marginally but bottomline improved by  27%, mainly driven by stronger core net profit from  associates (+61%), together with better performance in  automotive (+31%) and equipment (+44%) divisions. The  automotive segment’s earnings were accelerated by robust  vehicle sales while equipment earnings were supported by  better product mix and cost optimisation initiatives. 

• We continue to like UMWH due to: 1) robust order book of  more than 240,000 units for both Perodua and Toyota (6 – 7  months of earnings visibility), and 2) continuous recovery  in its all-other segments. 

• The company is currently trading at an attractive FY23F PE  of 10x, lower than its 5-year average of 13x while offering a  decent dividend yield of 3%

Source: AmInvest Research - 29 May 2023