Results

• UMW Holdings Berhad (UMW) posted a stellar 4Q22 with revenue of RM4.38b (+20% yoy and +7.8% qoq) attributable to growth in all core business segments and mainly driven by the continued strong momentum post-pandemic.

• Earnings dragged by associated company (Perodua).UMW posted RM112m core earnings in its 4Q22 (-52% yoy). The declined performance was mainly due to sluggish performance of profit from associated company (Perodua) attributable to higher input cost in 4Q.
   
• Earnings in line with expectation. Overall, the 4Q results are in line with ours and consensus forecast after full year FY22 RM421m core earnings account for 102%/96% FY22F in house/consensus forecast.
   
• The Group’s automotive segment reported RM3.69b revenue in 4Q22 (+20.7% yoy and +7.8% qoq) driven by strong vehicles sales. However, the PBT of the segment has declined qoq (-0.5%) and yoy (-32.1%) with lower PBT margin (-0.4 ppts qoq and -3.8 ppts yoy) due to lower share of profit from associated company (Perodua).

• Equipment segment profit dropped QoQ despite higher revenue. UMW’s 4Q22 Equipment segment posted higher revenue qoq (+0.2%) and yoy (+8.3%) and PBT (-28.7% qoq and +23.2% yoy) due to higher demand for heavy and industrial equipment in line with the recovery of construction and industrial activities.

• Manufacturing & Engineering segment posted 4Q22 revenue of RM278.5m (+10.4% yoy and +23.3% qoq) and RM29.2m in PBT (+117.7% yoy and +150.2% qoq). The performance of the segment in the quarter was contributed by higher sales of auto components, lubricants, and Aerospace parts in line with the robust vehicles sales and momentum continue recovering of air travel.

• Dividend declared. The Group has declared 11.2 sen/share of dividend (EX-date on 17 Apr 2023) which takes full year dividend to 14.2 sen/share (FY21: 5.8sen/share). This amound is the highest dividend payout since FY 15 and higher than our 9 sen/share dividend forecast. We expect dividend growth to continue moving forward supported by robust balance sheet with RM1.45b net cash position and solid earnings forecast. Hence, we raise our dividend forecast for FY23F to 15 sen (from 7 sen).

Comments

• 1H23F vehicles unit sales expected to be boosted by strong backlog orders…… Management has guided us that the backlog orders for UMW Toyota and Perodua have remained strong up to date (UMWT: approximately 50k (down from last quarter: 60k backlogs) and Perodua: approximately 200K).

• Expecting strong performance in 1H23, followed by easing supply chain constraints and a robust backlog of vehicles orders. Meanwhile, the Equipment segment, which includes Industrial and Heavy Equipment, is expected to be boosted by greater economic activities in the regional market, while the M&E segment will be driven by a strong TIV forecast and the reopening of air travel in the industry.

• … but moderate in 2HFY23F. In view of minimal impact from supply chain disruption on the production of UMW, we envisage majority of the backlog order to be delivered 1H23. Amid the global economy slowdown and interest rate upcycle, we expect UMW’s performance in 2HFY23F to soften.

• Associate company performance dragged by input cost. The margin of the associate company Perodua is falling, attributed to the increase of raw material cost as the supply chain of Perodua involves numerous of suppliers, making it difficult for management to manage costs effectively within a short period of time.

Earnings Outlook

• We maintained our FY23F earnings forecasts at RM 355.6m. Meantime, we introduce our FY24F earnings forecasts at RM 396.8m (+11.6% yoy).

Valuation/Recommendation

• Downgrade to HOLD call on UMW with an unchaged target price of RM3.96 as share price has appreciated. Our valuation is pegged at PE multiple of 13x FY23F PER with an EPS of 30 sen which is in line with its 3-year mean PER. We like the company for its strong recovering momentum in all of its business segments and its leading position in the industry. However, we opine that the share price is fully valued at the moment.

Source: JF Apex Securities Research - 28 Feb 2023