Investment Highlights

• We maintain HOLD on UMW Holdings but raise our FV to RM6.06/share from RM5.85/share as we roll over to FY19 earnings.

• 1Q18 core net profit of RM79mil — taking out exceptional items namely gains on disposal of PPE and forex losses totalling RM14.4mil — was in line with expectations, making up 25% of our FY estimate and 23% of consensus.

• Revenue fell 10% YoY while net profit from the continuing operations slipped 2% YoY.

• The auto segment was cushioned by a stronger ringgit against the USD, which saw its PBT margin strengthened 3ppts to 7% despite a drop in Toyota sales. UMW launched the new Harrier and C-HR during the quarter, in addition to facelifts of the Hilux, Sienta, Alphard and Vellfire. The stronger ringgit will provide some margin relief amid the group’s guidance of flat car sales this year.

• The equipment segment held its own, seeing better exports of Komatsu equipment and support from the renewal of a major contract for its industrial sub-segment. Earnings saw fair growth and margins rebounded to 12% amid activities in the local construction sector and regional demand for Toyota forklifts.

• The M&E segment remained in the red as the aerospace unit ramps up production to meet a profit target of FY19. We believe the worst is over as pre-tax losses of the segment have shrunk from RM10mil to RM3mil over the period of one year.

• The group also declared a dividend of 5 sen/share, amounting to a payout of 64% of its EPS. This is the first dividend paid out in two years, as it has come out of the woods following the demerger of the O&G business. We project a payout of 9 sen/10 sen for FY18/19.

• We are assured of the earnings clarity and the group’s holistic growth plans. The auto segment will see a second Toyota plant come onboard next year, M&E playing a bigger role as aerospace earnings kick in and equipment starting to benefit from the restructuring of its Komatsu distribution last year.

• We retain a HOLD as the share price is still well above our SOP-based FV of RM6.06, for which we have imputed a 5% sales growth for Toyota and PE of 13x on the auto segment.

• Our FV, pegged to FY19F, includes the additional 10% shareholdings in Perodua but excludes a stake in MBM, given the ambiguities that need to be resolved by its latest deadline of end-October.

Source: AmInvest Research - 23 May 2018