Core PATMI at RM106.1m for 2QFY19 (+51.5% QoQ; +55.8% YoY) and RM176.2m (+34.9% YoY) for 1HFY19, was within HLIB’s FY19 forecast (51.1%), but below consensus (40.2%). Earnings growth YoY was driven by stronger automotive sales volume and UMW’s exit strategy from the Oil & Gas segment. Maintain HOLD with unchanged TP: RM5.20 based on 10% discount to SOP: RM5.78.

Within expectation. UMW reported core PATMI of RM106.1m for 2QFY19 (+51.5% QoQ; +55.8% YoY) and RM176.2m (+34.9% YoY) for 1HFY19, achieving 51.1% of HLIB’s FY19 forecast, but below consensus at only 40.2%. We note that UMW has provided RM34.8m in 1HFY19 for the profit distribution for 10-years Perpetual Sukuk of RM1.1bn that was issued in April 2018.

Dividend. None.

QoQ/YoY/YTD. Core earnings improved by 51.5% QoQ/ +55.8% YoY/ +34.9% YTD, mainly driven by stronger automotive sales volume (Toyota and Perodua) and improved contributions from Oil & Gas unlisted segment (discontinued operations) as UMW gradually exits the business.

Outlook. While UMW will continue to leverage on new model launches for Toyota (Vios, Camry and Yaris) and Perodua (Aruz and updated Axia), we remain cautious on the negative impact from the depreciating RM/USD, deteriorating consumer sentiment and heightened competitive market in 2H19 and 2020. UMW Aerospace will gradually ramp up its production before turning profitable in FY20.

Forecast. Unchanged.

Maintain HOLD, TP: RM5.20. Maintain HOLD recommendation on UMW with unchanged TP: RM5.20 based on 10% discount to SOP of RM5.78. We believe UMW is fairly valued at its current level.

Source: Hong Leong Investment Bank Research - 28 Aug 2019