Reported a disappointing core 4QFY22 PATMI at RM68.3m (-40.0% QoQ; -52.9% YoY), resulting to RM399.1m for FY22 (+176.1% YoY) below both HLIB’s forecast (84.5%) and consensus (90.0%). Still, we expect continued stronger earnings in FY23, leveraging onto the growth of Automotive, Equipment and M&E segments in tandem with the economic recovery. Maintain BUY with an unchanged TP: RM4.25 based on 10% discount to SOP: RM4.72.

Below expectation. UMW reported core PATMI of RM68.3m for 4QFY22 (-40.0% QoQ; -52.9% YoY) and RM399.1m for FY22 (+176.1% YoY). The results were below HLIB’s FY22 forecast (84.5%) and consensus (90.0%). The disappointment was due to lower than expected margins on higher operating costs in 4QFY22. RM16.0m EIs were adjusted for FY22 on fair value gain on derivative, unrealised forex gain net PPE write-offs/impairments and RM29m Prosperity Tax impact.

Dividend. Declared a final dividend of 11.2 sen/share (ex-date: 17 Apr 2023). Total dividend for FY22 was 14.2 sen/share (above our expectation of 8.0 sen/share). Management shared its intention to continue rewarding shareholders as the group’s balance sheet improved.

QoQ/YoY. Despite the group’s higher revenue and record quarterly car sales, core PATMI declined -40.0% QoQ and -52.9% YoY to RM68.3m in 4QFY22, mainly due to combination of accelerated costs, cost adjustments, higher logistics costs and raw material costs during the quarter.

YTD. Core PATMI rose to RM399.1m in FY22 (+176.0% YoY), mainly driven by stronger contribution across all segments as the economy fully reopened during the year (vs. various lockdowns SPLY). All segments recorded stronger sales revenue following higher sales volume, production volume and services provided.

Automotive. Backed by strong order backlogs of 50k units for Toyota and 220k units for Perodua, we expect sustained performance in FY23. The group is targeting for higher productions and imports in order to address the high order backlogs. Toyota’s 2023 sales target is 93k units (-8.0% YoY) and Perodua at 314k units (+11.3% YoY). The higher raw material costs is expected to be negated by the recovering RM/USD, ongoing cost-optimization measurements and hike in car prices. Attractive new model launches for the year include new Toyota Vios and Perodua Axia.

Equipment. The segment has been improving in tandem with the economic recovery post pandemic in the region. Heavy equipment continues to leverage onto the recovery of construction sector as well as sustaining plantation sector. Industrial equipment remains healthy as UMW established a new refurbishment business model and expanded automation business, system integration and logistic solution.

M&E. Both automotive parts (Kayaba) and lubricants are expected to continue leverage on economic recovery in 2023. The lubricants will have its new smart plant commencing operations in 2H23. Aerospace manufacturing continues to recover with higher demand (as airlines reinstate flying capacity) and is expected to achieve capacity utilization of 70-75% in 2023 (vs. 50% in 2022).

Forecast. Unchanged.

Maintain BUY, TP: RM4.25. Maintain BUY with an unchanged adjusted TP: RM4.25, based on discount of 10% to SOP of RM4.72. UMW will continue to ride onto the higher automotive order backlogs and the continued economic recovery in coming quarters.

Source: Hong Leong Investment Bank Research - 28 Feb 2023