1Q19 core PATAMI of RM78.7m (+17% YoY, +14% QoQ) came in within our expectation at 20%, but below consensus expectation at 16%, of the full-year estimate. For 1Q19, UMW Toyota Motor sales was at 13,722 units (+8% YoY, +6% QoQ), whereas, Perodua’s sales were at 60,659 units (+9% YoY, +3% QoQ). No changes to our FY19-20E CNP and our TP of RM5.80 based on 17x FY19E EPS. Maintain MP.

1Q19 within our expectation. 1Q19 core PATAMI of RM78.7m (+17% YoY, +14% QoQ) came in within our expectation at 20%, but below consensus expectation at 16%, of the full-year estimate. No dividend was declared for the quarter as opposed to 5.0 sen in 1Q18.

YoY, 1Q19 core PATAMI rose 17% buoyed by: (i) higher Automotive revenue (+15%) from UMW Toyota Motor sales at 13,722 units (+8% YoY), (ii) better performance of associate and joint-venture company (+17%) especially from 38%-owned Perodua, which recorded higher unit sales at 60,659 units (+9% YoY), (iii) higher Equipment revenue (+3%) with the strong export sales for Komatsu equipment and industrials old fleet renewal, and (iv) higher M&E segment revenue (+40%), with higher sales of auto component and improved sales from aerospace business. This was despite lower PBT margin by 1.3ppt to 5.1% from 6.4% in 1Q18 due to higher depreciation (+59%) largely from the new Bukit Raja Plant. Note that, the top three selling models in 1Q19 were Vios, Hilux and Rush, which accounted for 68% of Toyota’s (excluding Lexus) sales, whereas, Perodua’s consists of Myvi, Axia and Aruz.

QoQ. 1Q19 core PATAMI increased by 14% mainly from: (i) the stronger UMW Toyota Motor’s 1Q19 sales unit (+6%) boosted by the roll-out of the all-new Toyota Vios (RM78-88k) on 24th January 2019, (ii) favourable sales mix under equipment segment (higher margin sales), (iii) lower finance costs (-40%) from lower borrowings, and (iv) lower effective tax rate of 20.9% (4Q18:28.7%). This was despite the higher depreciation (+70%) largely from the new Bukit Raja Plant affecting its Automotive segment margin as well as lower contribution from associates and JV companies largely due to Perodua’s investment cost on all-new Perodua ARUZ platform.

Outlook. 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 (bookings at 20k units, 9.8k delivered) and MyVi (bookings at 150k, with c.130k units delivered). For Equipment, the group will continue to leverage on its partners (KOMATSU & TICO)’ strength to boost product range and market penetration while, expanding total solutions services. UMW Aerospace, under the M&E segment, is expected to trim its losses to c.RM20m level in FY18/FY19 before reaching breakeven level in FY20 considering that some front-loaded investments need to be amortised.

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 - 23 May 2019