Result

• UMW Holdings Berhad (UMW) posted a better 1Q22 revenue of RM3.65b, +23.6% yoy and +0.2% qoq mainly driven by the continued strong momentum of sales and higher export sales of automotive parts, thanks to the recovery of economic activities benefited from containment measurement.

• Lower QoQ earnings due to high base. UMW posted RM108m core earnings in its 1Q22, up +23.4% but down - 53.7% qoq. The drop of QoQ performance was mainly due to a tax allowance of RM140m recognized in 4Q21.

• Higher revenue from automotive segment boosted by higher sales of automotive parts despite lower qoq vehicles sales. The Group’s automotive segment reported RM3.07b revenue in its 1Q22, surging +28.1% yoy and +0.3% qoq. The UMW Toyota vehicles sales dropped 14% qoq due to production impact by supply chain disruption. However, the drop of vehicles sales was mitigated by higher export of automotive parts thanks to recovery of global economic.

• Lower QoQ earnings from automotive segment dragged by lower profit shared by associate company – Perodua. Associate company - Perodua recorded lower sales of -9,574 vehicles (-13.5% qoq) in 1Q22 compared to 4Q21. The lower sales was mainly due to the escalation of supply chain disruption in automotive industry due to geopolitical conflicts.

• Earnings meet expectation. 1Q22’s RM108m core earnings meet our/consensus full year forecast which accounts for 32%/35% FY22F in-house/consensus forecast as lower earnings are expected in 2H22 on the backdrop of lifting of sales tax exemption.

• Stronger Equipment segment. UMW’s 1Q22 Equipment segment posted RM31.8m PBT (+9.8% qoq and +44.8% yoy) as a results of higher demand of products and services of the segment in both local and overseas markets, underpinned by recovery of business and economic activities as global is in transition into the endemic phase.

Comment

• Toyota sales and Perodua sales met our target. The 22.45k of UMWT sales and Perodua on 61.6k vehicles sold in 1Q22 met our sales forecast for FY22, standing at 75k units for Toyota and 210k units for Perodua. Overall, UMWT’s sales account for 30.7% and Perodua account for 29.3% of our full year forecast thanks to sales tax exemption.

• Softening 2QFY22 results expected… We expect a lower 2QFY22 result as the production has been adversely affected. We are be briefed by management that a plant has shut down for 10 days in April 2022 for the preparation of new model launched. Meanwhile, the production has shut down in mid of May due to Hari Raya festive coupled with the global supply chain disruption. We envisage a slower performance in 2Q22 with lower deliver of vehicles and automotive parts.

• … but still optimistic on the performance of full year 2022. Our sales forecast has factored in the adverse impact of production but still expect a yoy growth on the back of robust order book, demand driven by sales tax exemption, introduction of new model (HEV Toyota Corolla Cross in 14 Jan 2022, Camry new facelift in 17 Feb 2022). Meanwhile, the Equipment segment which includes Industrial and Heavy Equipment are expected to be further boosted by greater economic activities.

• Minimal impact from China partial lockdown. We understand from the management that its operation only suffered a minimal impact from the China partial lockdown as the Group has plenty or alternate suppliers from other countries such as Thailand, Vietnam, Indonesia.

• Rising material price prompted the Group to increase vehicles prices. The input cost of UMW has increased due to uptrend of labor cost, commodity price. Thus, UMW has to adjust the selling prices of the vehicles and other products with an average of 4% increase.

• Updates on sustainability plans and actions. UMW has framed its sustainability planning in 4 pillars including 1) Environmental stewardship, 2) Dynamic workforce, 3) Innovative and high-performance culture and 4) Nurturing the community and society. Some initiative are done including green shot initiative & bamboo project (planting for carbon sequestration), solar panel installed in manufacturing plant and some green products and services launched. With the good efforts in sustainable actions and plan, it may mitigate the risk of ESG concern and attract institutional investors.

• Downside risks. The downside risks include: 1) Supply chain disruption and shortage of automotive chips. 2) Further escalation of Ukraine – Russia conflict causing elevated of supply chain concern and higher input cost.

Source: JF Apex Securities Research - 25 May 2022