Reported core 2QFY22 PATMI RM99.9m (-9.3% QoQ; -RM20.3m YoY) and RM210.0m for 1HFY22 (+208.7% YoY), above HLIB’s forecast (52.0%) and consensus (61.2%). We expect a stronger 2HFY22 ahead, leveraging onto the higher order backlog of the automotive segment and the anticipated economic recovery. Adjusted earnings for FY22-24 by +8.9% -5.2% and -14.4% respectively as we impute accelerated automotive sales volume into FY22. Maintain BUY with an unchanged TP: RM3.85 based on 10% discount to SOP: RM4.26.

Above expectations. UMW reported core PATMI of RM99.9m for 2QFY22 (-9.3% QoQ; -RM20.3m YoY) and RM210.0m for 1HFY22 (+208.7% YoY). We deem the result above HLIB’s FY22 forecast (52.0%) and consensus (61.2%) as we expect stronger earnings in 2HFY22. RM1.6m EIs were adjusted for 1HFY22 – fair value loss on derivative and net loss on disposal of investments were offset by disposal gain of PPEs and inventory writebacks.

Dividend. None.

QoQ. Core PATMI declined -9.3% to RM99.9m in 2QFY22, mainly due to lower contribution from an associated automotive company.

YoY/YTD. Core PATMI improved to RM99.9m in 2QFY22 (vs. -RM20.3m SPLY) and RM210.0m in 1HFY22 (+208.7% vs SPLY), mainly driven by stronger contribution from across all segments on full months operation during current period (vs. lockdown in Jun 2021). Automotive segment recorded higher sales volume of Toyota, Lexus and Perodua. Similarly, both Equipment and Manufacturing segments also saw improvement in sales revenue with higher demand from both local and foreign markets.

Automotive. Management is expecting continued strong automotive performance in subsequent 2HFY22, leverage onto the strong order backlogs of over 60k units for Toyota and 240k units for Perodua. Toyota has increased its sales target to 80k units (from 73k units) for FY22, while Perodua is likely to revise up its current target of 247.8k units. Management has guided for an improvement in supply chain situation in 2HFY22. Both the improving sales volume and restructured costs efficiency, have been guided to cushion the negative impact of depreciating RM/USD and higher raw material costs.

Equipment. Management expects the segment to improve in line with the economic recovery post pandemic in the region (except Myanmar). Heavy equipment will leverage onto the pump-priming infrastructure stimulus spending and surge in global commodity prices. Demand for its industrial equipment remains healthy from manufacturing, food and beverages and logistics sectors.

M&E. Both automotive parts (Kayaba) and lubricants will leverage onto the strong domestic automotive recovery. Kayaba has seen improvements of +13% in 1HFY22, while lubricants has seen strong rebound in 2QFY22 as economic activities recover. Aerospace manufacturing has been gaining traction as airlines reinstate flying capacity and expected to breakeven in FY22.

Forecast. Adjusted earnings for FY22 by +8.9%, but cut FY23 by -5.2% and FY24 by -14.4%, as we imputed accelerated deliveries in FY22.

Maintain BUY, TP: RM3.85. Maintain BUY with an unchanged adjusted TP: RM3.85, based on discount of 10% to SOP of RM4.26. UMW will continue to leverage onto the higher automotive order backlogs and the anticipated economic recovery in coming quarters.

Source: Hong Leong Investment Bank Research - 29 Aug 2022