Due to be released by end-May 2019, we expect its 1Q19 CNP to chalk between RM83-90m, compared to RM69.3m in 4Q18 and RM67.2m in 1Q18. We attributed this to the stronger UMW Toyota Motor’s sales at 13,865 units (+3% QoQ, +9% YoY) and 38%-owned Perodua’s sales at 60,573 units (+3% QoQ, +9% YoY) as well as better margin from higher localisation rate and lesser discounting promotion for outgoing models. No changes to our FY19-20E CNPs. Maintain MP with a TP of RM5.80.

Stronger 1Q19 from pent-up demand of the all-new Vios. We expect its 1Q19 CNP to come in between RM83-90m, compared to 4Q18 CNP of RM69.3m (+21-30% QoQ) and 1Q18 CNP of RM67.2m (+25-34% YoY); which is due to be released by end-May 2019 (tentatively on 21st May 2019). We attributed this to the stronger UMW Toyota Motor’s 1Q19 sales of 13,865 units (+3% QoQ, +9% YoY), translating into a better total TIV market share of 10% (1Q18: 9%). 1Q19 sales largely came from the pent-up demand from its all-new Toyota Vios (launched on 24th January 2019, 48% of 1Q19 sales), and supported by Toyota Hilux (19% of 1Q19 sales), all-new Toyota Rush (late delivery due to approval issues, 5% of 1Q19 sales) and all-new Toyota Camry. Our assumption for the 1Q19 CNP is based on vehicles’ average selling price for the past three quarters and expected better margin from the cost savings derived from higher localisation rate of the all-new Vios (at 80%, compared to previous generation of 50%) as well as lesser discounting promotion for the outgoing-models.

Backed by stronger Perodua. Our assumptions is further strengthened by the stronger 38%-owned Perodua’s sales at 60,573 units (+3% QoQ, +9% YoY), with a higher TIV market share of 42% (1Q18: 41%), driven by higher deliveries of the all-new Perodua Myvi (bookings at 150k, with c.130k units delivered), and the all-new Perodua ARUZ (bookings at 15k units, 6.6k delivered). Our 1Q19 CNP assumption of RM83-90m is expected to be within our full-year estimate in the range of 21-23%; however, this is below consensus expectations at 17-18%.

Automotive and Equipment to boost products range. UMW Toyota is targeting a better year for 2019 at 75k units (+15%) for Toyota and Lexus models. UMW has launched the all-new Toyota Vios (RM78-88k) on 24th

January 2019, all-New Toyota Yaris (RM72-84k) on 19th April 2019 and will be launching the A90 Toyota GR Supra (CBU by 2H19). Elsewhere, 38%-owned Perodua is targeting higher 2019 sales of 231k (+1.7%), from the all-new ARUZ and MyVi. For Equipment division, the group will continue to leverage on its partners (KOMATSU & TICO)’s strengths, while UMW Aerospace is expected to reach the breakeven level in FY20.

UMW Aerospace to hit the breakeven level by FY20. We expect UMW Aerospace (under the M&E segment) to trim its losses to c.RM20m level in FY18/FY19 (from losses of c.RM60m in FY17) before reaching the breakeven level in FY20 considering that some front-loaded investments need to be amortised. UMW Aerospace has delivered six fan cases for FY17 and additionally, expects to ramp up its production to 80/100 fan cases for 2018/2019 and 150 fan cases by 2020 before hitting full capacity of 250 fan cases by 2021. Note that, UMW has not been disclosing the latest UMW Aerospace’s financial numbers due to nondisclosure agreement with its principal, Rolls-Royce PLC.

Maintain MARKET PERFORM with an unchanged Target Price of RM5.80 based on 17x FY19E EPS which is the 5-year historical mean PER, or implying 14.3x FY20E EPS. Risks to our call include: (i) lowerthan-expected car sales volume, and (ii) unfavourable forex.

Source: Kenanga Research - 9 May 2019