What’s new

• We attended UMW’s 2QFY2017 results briefing and came back feeling reassured about the Group’s rationalization plans and believe the Group is on track for earnings recovery. UMW also shed some light on its future business plans.

• To recap, the Group’s 1H17 financial results were dragged down by operating losses in in O&G segment as well as aerospace business. The Group expects gradual earnings recovery for the businesses as the operating losses are expected to be minimized in the near future.

Comment

• Welcoming CH-R for its Automotive division. According to UMW, the most awaited new model, Toyota CH-R will be officially launched in 1H18. Toyota CH-R is a CBU unit from Japan and is expected to open for order from October 2017 onwards. However, the selling price still yet to be determined. This compact SUV model is compatible to its peers’ Honda HR-V and Mazda CX-5. Besides that, as a plan to capture bigger market share, the Group aims to introduce more numbers of CKD for various models. Currently, the Group has 6 CKD models and 6 CBU models. However, introduction of more new passenger car models will only be taken place upon commencement of its new manufacturing plant in Bukit Raja, Shah Alam in 2019.

Earnings Outlook/Revision

• We revise upward our earnings forecasts for FY18 and FY19 by 8.5% and 4.8% respectively as we believe its business will be more stable after disposal of its O&G segment and have better focus on three core businesses.

Valuation & Recommendation

• Maintain HOLD call on UMW with an unchanged target price of RM5.20. Our valuation for UMW is pegged at 20x FY2018F PE based on revised EPS of 26 sen. Our target PE valuation is close to its mean PE of 22x.

Source: JF Apex Securities Research - 25 Sept 2017