9MFY19 core PATAMI of RM277.3m (-14% YoY) came in within our/consensus expectations at 74%/72% of full-year estimates. UMW recorded the highest quarterly profit since the last 4 quarters at RM115m (+12% QoQ) on higher margin models sales and improved contribution from M&E segment. No change to our FY19-20E CNP and TP of RM5.45 based on 14x FY20E EPS. Maintain MP.

9MFY19 within expectations. 9MFY19 core PATAMI of RM277.3m (- 14% YoY) came in within our/consensus expectations at 74%/72% of full-year estimates. Special DPS of 4.0 sen was declared for the quarter, bringing YTD-FY19 DPS to 4.0 sen (YTD-FY18: 4.0sen), within expectation.

YoY, 9MFY19 core PATAMI plunged 14%, no thanks to: (i) weaker equipment segment profit contribution (-14%) following a slow-down in construction, manufacturing, mining and logging activities in countries that the segment operates in, (ii) lower Automotive segment’s profit contribution (-1%) from the weaker UMW Toyota Motor’s sales of 58,885 units (-15%) from the delay in pricing approval, (iii) higher effective tax rate of 19.6% (9MFY18: 18.1%), and (iv) higher depreciation (+153%) largely from the new Bukit Raja Plant. The decline was despite: (i) higher associate and joint-venture company contribution (+33%), especially from 38%-owned Perodua, which recorded better sales of 178,668 units (+6%), and (ii) higher M&E segment profit contribution (+155%), due to the ramping up of fan case production by the Aerospace sub-segment.

QoQ. 3QFY19 core PATAMI surged 12% buoyed by: (i) higher associate and joint-venture company (+12%), especially from 38%- owned Perodua, which recorded higher margin sales driven by the allnew Perodua Myvi and the all-new Perodua ARUZ (25k bookings, 22.2k delivered), despite recording lower unit sales of 56,972 units (- 7%), (ii) higher M&E segment profit contribution (+16%), due to the ramping up of fan case production by the Aerospace sub-segment, and (iii) lower effective tax rate of 14.0% (2QFY19: 20.3%). These more than offset: (i) lower Automotive segment profit contribution (-7%) from the weaker UMW Toyota Motor’s sales of 19,908 units (-9%) affected by the spate of public holidays, and (ii) weaker equipment segment margin earned (-13.2%) in a challenging market for both its Heavy and Industrial Equipment businesses.

Outlook. UMW Toyota targeted higher 2019 sales at 72k units (+8%) 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, A90 Toyota GR Supra (20th Sept) and will be launching the all-New Toyota Corolla Altis by year-end and 4 new SUVs in 2020. Elsewhere, 38%-owned Perodua is targeting higher 2019 sales of 235k units (+3%), driven by 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).

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

Source: Kenanga Research - 29 Nov 2019