• UMW posted a 2020 core net profit of RM284.9m (+27.4% yoy) – above our and consensus expectations
• 4Q20 core net profit saw a strong rebound to RM212.1m (>100% yoy), backed by higher car sales and margin expansion
• We raised our earnings forecasts by 20-32% for 2021-22E, mainly accounting for lower overall opex. Post revision, we upgrade UMW to BUY with a higher TP of RM3.50

Above Expectations

UMW’s 4Q20 core net profit rebounded strongly to RM212.1m (>100% yoy), on the back of higher revenue at RM3.2bn (+4.1% yoy) – predominantly from higher vehicle sales, amid easing of lockdown and sales tax exemption. Importantly, PBT margin for the Auto segment expanded strongly to 7.2% (+2.5ppt), posting RM191m (+66% yoy) in tandem with the higher sales volume. On the flipside, equipment and manufacturing & engineering (M&E) segments posted softer PBTs of RM18.5m (-32%) and RM22.7 (-24%) respectively. Tracking the stellar 4Q20 performance, UMW registered a 2020 core net profit of RM284.9m (+27.4% yoy) – coming in above ours and consensus expectations. The variance to ours was mainly on higher than expected contribution from the auto segment and stronger margins.

Sequentially Better Across Most Segments

On a qoq basis, revenue and core net profit rose +21% and >100% respectively. Better sequential performances were seen with Auto (sales tax exemption and improved models introduced during the quarter) as well as M&E (higher contribution from aerospace segment) following easing of lockdown. To note, Toyota/Lexus unit sales rose to 21.9k in 4Q20 (+16% qoq / flat yoy) whereas Perodua stood at 75.2k (+6% qoq / +23% yoy). Elsewhere, the group declared a 4sen DPS for 2020 (vs 2019: 6 sen), within expectations.

Upgrade to BUY

In view of the results tracking ahead of our forecasts, we lift our earnings estimates by 20-32% for 2021-22E, mainly inputing lower opex. Post earnings revision, our TP is lifted to RM3.50 (from RM3.20). Upgrade to BUY considering the potential upside to current share price. Notwithstanding the early challenges to the year, we believe sales tax exemption and new launches would likely continue to support sales through 1H21 and going into 2H21. Also, we expect Perodua to remain in vogue given the attractive and affordable pricing nature of the national marque.

Source: Affin Hwang Research - 26 Feb 2021