Reported core PATMI at RM195.1m for 4QFY20 and RM207.5m for FY20, above HLIB’s forecast (172.4%) and consensus (138.4%) due to stronger than expected automotive sales volume and margins as well lower core loss from Other segment. Increased earnings for FY21-22 by 19.4% and 18.8% respectively after imputing stronger earnings for Automotive segment (extended SST exemptions to 30 Jun 2021 and several attractive new models) and lower loss for Other segment. Upgrade to BUY (from Hold) with higher TP: RM3.45 (from RM3.25) based on 10% discount to SOP: RM3.83.

Above expectations. UMW reported core PATMI of RM195.1m (adjusted for quarterly provision of RM13.5m Perpetual Sukuk distribution) for 4QFY20 (+203.3% QoQ; +892.7% YoY) and RM207.5m for FY20 (-17.8% YoY), above HLIB’s FY20 forecast (172.4%) and consensus (138.4%). The strong momentum in 4QFY20 was driven mainly by strong car sales from SST exemption and lower core losses in other segment. We have excluded net EIs of -RM12.4m in FY20, mainly due to net impairments and provisions, net disposal gain and forex gain.

Dividend. Declared a final dividend of 4 sen/share (ex-date: 15 April 2021).

QoQ & YoY. Adjusted for quarterly distribution for Perpetual Sukuk, UMW core PATMI expanded 203.3% QoQ and 892.7% YoY to RM195.1m, mainly driven by stronger group automotive sales volume since SST exemptions implemented in Jun 2020 and lower core operating loss at Other segment (including Holding-co).

YTD. Core earnings declined -17.8% YoY, as group operations were affected by Covid-19 and implementation of MCO in 1HFY21.

Automotive. Management is upbeat on strong automotive sales in FY21 due to extension of SST exemption to 30 Jun 2021 as well as several attractive new models from Toyota (confirmed Vios facelift, Yaris facelift and new Corolla Cross) and Perodua (confirmed Ativa and expected Myvi facelift). The group has set sales target of 302k units for 2021 (62k units for Toyota and 240k units for Perodua).

Equipment. Demand for heavy equipment (mining, construction and logging) remains sluggish in the near term, given the slowdown of domestic as well as regional economic activity during the year. Management expects some recovery in demand from domestic construction and plantation sector, while mining sector in Myanmar may continue to see weakness in the near term due to the country’s emergency status.

M&E. Automotive parts will leverage on the recovery of local car production volume, for earnings sustainability. Kayaba has completed its +15% capacity expansion in Nov 2020. On the other hand, Aerospace manufacturing is expected to face further slowdown in 2021.

Forecast. Increased earnings for FY21-22 by 19.4% and 18.8% respectively after imputing stronger earnings for Automotive segment and lower loss for Other segment.

Upgrade to BUY, TP: RM3.45. Upgrade to BUY (from Hold) with higher TP: RM3.45 (from RM3.25), based on unchanged discount of 10% to SOP of RM3.83 (from RM3.60) post earnings upgrade. UMW will continue to leverage onto the strong automotive sales in 2021 with the extension of SST exemptions, attractive new models and economic recovery (driven by stimulus plan and vaccination program).

Source: Hong Leong Investment Bank Research - 26 Feb 2021