Reported core 4QFY21 PATMI RM137.6m and FY21 PATMI RM149.2m. We deem the results within HLIB’s forecast (96.4%), but below consensus (86.8%). The strong 4QFY21 was mainly attributed to the strong recovery of automotive segment (accelerated car deliveries). Management is guiding for sustainable earnings into FY22, leveraging on the anticipated economic recovery and SST exemptions (for automotive). Adjusted earnings for FY22-23 by +25.8% and +6.9% respectively. Upgrade to BUY with higher adjusted TP: RM3.55 (from RM2.95) based on 10% discount to SOP: RM3.95.

Within expectations. UMW reported core PATMI of RM137.6m for 4QFY21, which uplifted FY21 PATMI to RM149.2m. We deem the result within HLIB’s FY21 forecast (96.4%), but below consensus (86.8%). RM119.0m EIs were adjusted for FY21, mainly consisting of attributed RM69.9m deferred tax credit for UMW Toyota (51% owned), attributed RM53.2m (estimated) deferred tax credit for Perodua (38% owned) and RM43.2m gain on PPE disposal, partially offsets by RM29.1m loss/impairment of investments and RM10.3m forex loss.

Dividend. Declared a final dividend of 5.8 sen/share (ex-date: 12 April 2022).

QoQ. Returned to core PATMI RM137.6m in 4QFY21 (vs. LATMI -RM61.1m in 3QFY21) as overall group operations recovered in 4QFY21 after government allowed the gradual re-opening of economy since Sep (Phase 1 NRP since Jun). Automotive sales recovered substantially with accelerated deliveries during the quarter.

YoY/YTD. Core PATMI improved +19.1% YoY/+19.3% YTD, mainly driven by stronger contribution from automotive segment on higher deliveries of Toyota models.

Automotive. Management is expecting continue strong automotive performance in FY22, leveraging onto the extend SST exemption to Jun 2022 and on-going strong demand for its models. Toyota has set FY22 sales target at 73k units, with current order backlog of 30k units (4-5 months waiting period). Similarly, Perodua has set a record sales target of 247.8k units for FY22, with indicative current waiting period of 4-5 months. Management guided the supply of chips have been secured fo r their targeted sales volume. Management does not expect material impact from the increasing global commodity prices (raw material costs) in the near term (usually absorbed by OEM principals) while there is on-going negotiations between UMW and Toyota Japan on potential price adjustments in the future.

Equipment. While Myanmar market remains uncertain in 2022, m anagement expects demand for heavy equipment to improve in tandem with increasing infrastructure stimulus spending and surge in global commodity prices. Demand for its industrial equipment remains healthy, leveraging onto the growing e-commerce platform. UMW will continue to expand its lease rental model for the segment.

M&E. Both automotive parts (Kayaba) and lubricant will leverage onto the strong domestic automotive recovery. However lubricant segment may experience margin compression due to surge in oil base cost. Aerospace manufacturing will regain traction as the global aviation sector recovers into 2022.

Forecast. Increased earnings for FY22 by +25.8% and FY23 by +6.9%.

Upgrade to BUY, TP: RM3.50. Upgrade to BUY with higher adjusted TP: RM3.55 (from RM2.95), based on unchanged discount of 10% to SOP of RM3.95. UMW will continue to leverage onto the anticipated economic recovery in FY22 and SST exemption until Jun 2022.

Source: Hong Leong Investment Bank Research - 28 Feb 2022