What’s new

• UMW Corporation Sdn Bhd (UMWC), a wholly owned subsidiary of UMW Holdings Berhad (UMW) has entered into a Transaction Agreement (TA) with Komatsu Ltd. of Japan (Komatsu) to establish a Joint Venture Company (JVC) for the heavy equipment business.

• Following completion of TA, both companies will enter into a Joint Venture Agreement (JVA) to conduct the next stage of cooperation as a joint venture partners.

• UMWC will hold a 74% stake of the JVC whilst Komatsu will hold a remaining 26% stake. The proposed transaction is expected to complete by 31st December 2018.

Comment

• Komatsu is a globally renowned manufacturer and long-term business partner of UMW. It manufactures construction and mining equipment, utilities, forest machines and industrial machinery. UMW’s equipment division is responsible for distributing Komatsu’s equipment for various sectors such as logging, manufacturing, logistics and distribution, construction, industrial, mining and agriculture.

• Widening product range and geographical business exposure. According to the Group, the JV will further strengthen and expand its Equipment division with the expansion of the sales of Komatsu’s products and market penetration to other countries such as Brunei, Singapore, Myammar and Papua New Guinea besides Malaysia. We believe the JV will seize the new growth areas as well as bolster its existing market share by introduction of new products and services to meet customers’ demand.

• Significant earnings contributions over a longer run. Having being positive to the deal, we do not foresee any significant earnings contribution to the Group in the near term as the outlook for construction and mining sectors are still weak coupled with challenging operating environment amid intense competition.

Earnings Outlook/Revision

• We maintain our earnings forecasts for FY18F and FY19F.

Source: JF Apex Securities Research - 3 Jul 2018