UMW Holdings (UMWH) reported a flat set of results – 1Q18 core net profit dropped marginally by 1.6% to RM91.1m, weighed by lower revenue from the automotive segment (-14.3% yoy). Despite the weaker revenue, earnings were better off thanks to the higher contribution from associates (+39.6% yoy). All in, the results were within market and our expectations. Moving forward, we believe earnings will be supported by 1) strong associate contribution, 2) improved demand for industrial equipment segment and 3) lower losses from its oil & gas / aerospace business. At 18x 2019E PER, we believe the positives have been largely priced in at this level. Maintain HOLD.

1Q18 Earnings Dip 1.6% Yoy

UMWH reported a core net profit of RM91.1m, in line with market and our expectations, accounting for 26.8% of street and our 2018 estimates. The 1Q18 earnings slipped by 1.6% yoy mainly attributable to lower revenue contribution from the automotive segment (-14.3% yoy). Toyota 1Q18 sales volume fell by 23.1% yoy as volume generative models like Vios and Avanza did poorly in 1Q18. Despite the weaker revenue, earnings were broadly lifted by higher contribution from associates (+39.6% yoy), driven by higher sales volume from Perodua. Perodua's 1Q18 sales volume grew 10.6% yoy, achieving its record first quarter in sales volume. Market share for Perodua for 1Q18 held firmly at 41.1% (1Q17 at 35.7%). UMWH’s margins improved 5.6ppts predominantly attributed to the strengthening of the RM, we opine. Elsewhere, UMWH declared a 5 sen dividend for 1Q18.

Sequentially, Core Profit Recovered From a Loss

Sequentially, UMWH’s 1Q8 core net profit recovered from a loss to RM91.1m on improved PBT margin of 6.1% (from 0.6%), thanks to higher equipment PBT margins of 12% (from 7.5%), lower losses from manufacturing & engineering and other businesses. Heavy equipment witnessed higher export sales of Komatsu equipment; Industrial equipment was bolstered by a major customer order on renewal of an entire fleet of older equipment.

Maintain HOLD and TP of RM5.90

We maintain our earnings forecasts and SOTP-based 12-month TP of RM5.90. Maintain HOLD. At 18x 2019E PER, we believe the group’s positive earnings momentum is largely priced-in.

Source: Affin Hwang Research - 23 May 2018