Yesterday, UMW M&E and UMW Aerospace SB (wholly-owned subsidiaries of UMW Holdings Berhad) had entered into a 25-year agreement with Rolls-Royce Plc (RR) to manufacture and assemble fan cases for Rolls-Royce Trent 1000 aero engines. The agreement stipulates that UMW will build a facility to manufacture, produce, assemble and supply fan cases for RR’s Trent 1000 engines in Malaysia. (Source: Bursa Malaysia)

Comments: We are not too surprised by the group’s latest development as it had previously indicated that it was on the look-out for value-enhancing activities for the group. This, however, marks UMW’s maiden foray into the aviation industry. We understand from management that production for the fan cases will begin by 4Q17. While we are positive on this venture in the longer term as it will reduce the group’s dependency on the automotive sector (1Q15: 62% of revenue), we hold off from making any changes to our forecasts for now pending further details and clarification from management. Maintain HOLD with unchanged SOTP-based TP of RM9.82.

Source: Affin Hwang Capital Research - 13 Aug 2015