1H19 core PATAMI of RM197.2m (+6% YoY) came in within our expectation at 53%, but below consensus’ at 45%, of the full-year estimate. For 1Q19, UMW Toyota Motor sales registered 31,456 units (-1%), affected by the lower commercial segment sales, whereas Perodua’s sales were at 121,743 units (+4%). No changes to our FY19-20E CNP and TP of RM5.45 based on 14x FY20E EPS. Maintain MP.

1H19 within our expectation. 1H19 core PATAMI of RM197.2m (+6% YoY) came in within our expectation at 53%, but below consensus expectation at 45%, of the full-year estimate. No dividend was declared for the quarter, as expected.

YoY, 1H19 core PATAMI rose 6% mainly due to higher turnover (+8%) from: (i) higher Automotive revenue (+7%) with UMW Toyota Motor sales at 31,456 units (-1%) skewed toward passenger vehicles, (ii) higher M&E segment revenue (+39%) which returned to the black from losses of RM3.4m to a profit of RM15.6m due to the ramping up of fan case production by the Aerospace sub-segment, as well as (iii) better performance of associate and joint-venture company (+27%), especially from 38%-owned Perodua, which recorded higher unit sales at 121,743 units (+4%). All these more than offset (i) higher depreciation (+71%) largely from the new Bukit Raja Plant, (ii) higher effective tax rate of 20.6% (1H18:14.7%), and (iii) lower Equipment profit contribution (-6%) on lower sales of heavy equipment (i.e Komatsu).

QoQ. 2Q19 core PATAMI rose 9% mainly from: (i) higher Automotive sales (+22%) from the stronger UMW Toyota Motor’s QoQ sales of 14,658 units (+27%) boosted by the roll-out of the all-new Toyota Vios and Toyota Yaris, (ii) higher M&E segment revenue (+3%), due to the ramping up of fan case production by the Aerospace sub-segment, and (iii) better performance of associate and joint-venture company (+16%), especially from 38%-owned Perodua, which recorded higher unit sales of 61,123 units (+1%). Note that, 2Q19 sales (70% of total sales) largely came from the combination of all-new Toyota Vios (launched on 24th January 2019), all-New Toyota Yaris (launched on 19th April 2019) and supported by Toyota Hilux.

Outlook. UMW Toyota targeted higher 2019 sales 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 all-New Toyota Corolla Altis and A90 Toyota GR Supra (CBU by 2H19). Elsewhere, 38%- owned Perodua is targeting higher 2019 sales of 235k units (+3.4%), from the all-new MyVi and ARUZ. For Equipment division, the group will continue to leverage on its partners (KOMATSU & TICO)’s strengths, while UMW Aerospace is expected to reach breakeven level by FY20.

Maintain MARKET PERFORM with Target Price of RM5.45 based on 14x FY20E EPS (at -1.0SD of its 5-year historical mean PER). We expect overall Toyota unit sales to be affected by the weak commercial segment sales (c.30% of sales), but mitigated by the stronger volume-driven passenger vehicles sales.

Risks to our call include: (i) lower-than-expected car sales volume, and (ii) unfavourable forex.

Source: Kenanga Research - 28 Aug 2019