Reported core 2QFY21 LATMI -RM20.3m, which dragged 1HFY21 PATMI down to RM60.4m, in line with HLIB’s forecast (30.9%), but below consensus (20.7%). Performance for the quarter was mainly affected the implementation of Phase 1 in Jun 2021. The group will leverage on the recent relaxation measures under NRP and SST exemptions for recovery towards 4QFY21. Maintain HOLD with unchanged TP: RM2.98 based on 10% discount to SOP: RM3.30.

Within expectations. UMW reported core LATMI -RM20.3m (adjusted for quarterly provision of RM17.5m perps distribution) for 2QFY21, which dragged lower 1HFY21 PATMI to RM60.4m. We deem the result in line with HLIB’s FY21 forecast (30.9%) as we are expecting a stronger 2HFY21 with the recent relaxation measures under the National Recovery Plan (NRP) and SST exemptions, but below consensus (20.7%).

Dividend. None.

QoQ. Adjusted for quarterly distribution for Perpetual Sukuk, UMW recorded core LATMI -RM20.3m in 2QFY21, deteriorating from PATMI RM80.7m in 1QFY21, following implementation of Phase 1 in Jun 2021, resulting in temporary halt to the group’s operation.

YoY/YTD. Improvement in results with LATMI -RM20.3m in 2QFY21 (vs. LATMI -RM46.9m in 2QFY20) and PATMI RM60.4m in 1HFY21 (vs. PATMI RM66.5m in 1HFY20), due to low base effect (for YoY), as the group was first caught with strict implementation of MCO1.0 in 1HFY20. The improvement was also driven by on-going cost-saving initiatives.

Automotive. Management remains confidence of a strong recovery of automotive performance in 2HFY21 with indicative outstanding orders of 20k units for Toyota (implied up to 4 months waiting period) and 70k units for Perodua (implied 3.0-3.5 months waiting period). Toyota will invest RM270m for CKD HEV Corrola Cross, which will commence by end 2021. Toyota is still maintaining its sales target of 62k units for FY21, while Perodua has announced to review its sales target of 240k units. Management is confident of the government further extending the SST exemption (ending 31 Dec 2021) into 2022.

Equipment. The segment has remained stable for the quarter with strong demand for industrial equipment (mainly for logistic and warehousing segment) while heavy equipment remained slow due to various lock down measures as well as political issue in Myanmar. Management is expanding its product range and services, leveraging onto the recovery program and infrastructure spending in other countries.

M&E. Recent quarter has been affected by Phase 1 restrictions, resulting temporary production halt. Overall production volume (aerospace, lubricants, parts/components) has dropped, dragging the M&E segment into the red. On the brighter note, automotive parts and lubricant is expected to leverage on the recovery of local car production volume. Similarly, aerospace manufacturing is expected to regain traction as the global aviation sector recovers into 2022.

Forecast. Unchanged.

Maintain HOLD, TP: RM2.98. Maintain HOLD with unchanged TP: RM2.98, based on unchanged discount of 10% to SOP of RM3.30. UMW will continue to leverage onto the economic recovery towards 4QFY21 driven by NRP and SST exemption. However, there are still uncertainties post 2021 – if the market is able to maintain demand momentum if SST exemption is not extended.

Source: Hong Leong Investment Bank Research - 27 Aug 2021