Result

• UMW Holdings Berhad (UMW) registered a core net profit of RM185.6m during last quarter of FY20 as compared to core net profit of RM86.6m in last quarter and core net loss of RM13.4m in same quarter period ago. Meanwhile, revenue chalked up 21.7% qoq and 3.8% yoy.

• As for full year FY20, the Group posted a core net profit of RM223.4m which down 14.2% yoy amid slumbering revenue, -18.8% yoy. The slower result was bogged down by dismal results across all segments impacted by Covid-19 pandemic outbreak.

• Substantially above expectations. 12MFY20 core net profit of RM223.4m was above our in-house/market expectation, accounting for 216.8%/139.81% of full year earnings estimates. The encouraging result was better earnings in M&E segment despite discouraging revenue.

• Final dividend declared. UMWH manage to eclared a final dividend of 4sen/share for FY20 amid Covid-19 pandemic outbreak,which translate to 1.2% dividend yield.

Comment

• Sales tax exemption helps boost Auto segment during Covid-19 pandemic. Auto division’s revenue jumped 25.4% qoq/8.9% yoy on the back encouraging PBT, +45.2% qoq/+66.3% yoy during 4QFY20. Better results were underpinned sales tax exemption introduced by government in June’20 couple with few model line-up by Toyota. Upon that both car makers sales has exceeded their initial target of 53k (Toyota) and 210k (Perodua) during FY20. Nevertheless, 12MFY20’s revenue and PBT down 19.5% yoy and 36.9% yoy respectively. Looking forward, we expect Auto segment to continue to deliver satisfactory results boosted by extension of sales and tax exemption untikl June’21 as well as introduction of new brands in FY21. According to management, Perodua expected to launch Perodua D55L SUV next month. Also Toyota expected to introduce Toyota Corolla Cross in near term for CBU model, and CKD model in 4QFY21.

• MCO dragged down overall Equipment segment. Equipment segment’s revenue up 7.1% qoq amid relaxation of MCO despite dismal margin which down 4.3ppts. Nevertheless, revenue and PBT tumbled 19.25 yoy and 24.1% yoy during FY20 as slower industrial activities due to MCO which resulted lower demand. Nevertheless, the Management highlighted that Heavy equipment sub segment manage to increase their market share albeit slower demand. Looking forward, the Group remain cautious on the segment’s future outlook due to prolonged MCO that could hampered the overall demand. Also, Emergency Declared by Myanmar government expected to give minimal impact to the business operation in Myanmar and the Group will continue to monitor the environment of the business. Addition, Industrial Equipment sub-segment to focus extending various recovery packages to its customers, mainly those in the growth sectors to mitigate the Covid-19.
   
• Better cost optimization lifted M&E’s PBT margin despite slump in revenue during FY20. Manufacturing & Engineering revenue and PBT inch up 0.8% qoq and 11.8% qoq during 4QFY21. Also, PBT soared 1.1% yoy during FY20 which bring PBT margin up by 1.0ppts despite depleting revenue,-13.6% yoy. Better margin arising from sturdy cost control which resulted higher PBT. Aerospace segment has showed some decline in number of deliveries during FY20 due to Covid-19 pandemic. Meanwhile, auto lubricants sub-segment was was slightly down in line with marginal decline in total industrial volume (TIV) in view of lower demand for auto-parts. Looking forward, the Group expected number of fan cases deliveries to be lower from initial target after take into account of current situation and expected to deliver more in 2HFY21. While for auto lubricants sub-segment, will continue to leverage on its OEM partners, benefited from vehicles sales and tax exemption for auto industry, completion of KYB-UMW plant expansion and modernisation given additional 15 capacity as well as sturdy t lubricants sales in overseas market.

Earnings Outlook/Revision

• We increase our core earnings forecast for FY21F by 29.1% yoy to RM262.4m. Also, we introduced core earnings for FY22F of RM348.8m with 3.1% core net profit margin.

Valuation & Recommendation

• Upgraded to BUY from HOLD call on UMW with a higher target price of RM3.30 (RM2.38 previously) following our earnings upgraded. Our valuation is now based on 15x FY21F PE with an EPS of 22 sen (17 sen previously). Target P/E ratio assigned is slightly lower than its 3-year average PE of 17x.

• We favor on its outlook as: 1) Auto division to spur by sales tax exemption as well as introduction of new models; 2)Lenient on hire purchase approval amid lower interest rate environment; and 3) Both Bukit Raja Plant and Shah Alam Plant running at full capacity.

Source: JF Apex Securities Research - 26 Feb 2021