9MFY20 core PATAMI of RM95.6m (-56%) came in at 111%/70% of our/consensus full-year estimates. The positive variance from our estimate stemmed from stronger-than-expected contribution from Automotive division and associate Perodua. As such, we increase FY20E and FY21E CNP by 87% and 24%, respectively, and our TP to RM3.30 (from RM2.70). Upgrade to OP (from MP). The group is expected to launch two all-new models under Toyota, one all-new model under Perodua and one which is still undisclosed, next year.

9MFY20 above our expectation. 9MFY20 core PATAMI of RM95.6m (- 56%) came in at 111%/70% of our/consensus full-year estimates. The positive variance from our estimate is due to stronger-than-expected contribution from Automotive division and associate Perodua. Note that, 9MFY20 core PATAMI excludes: (i) Toyota Capital Malaysia (TCM)’s provision of loan moratorium impact of RM33.8m, (ii) reversal of impairment and receivables (including debt recovery) of RM31.7m, (iii) unlisted O&G’s forex loss (no more stake held) of RM27.9m, and (iv) other impairment reversal of RM1.6m. There was no dividend declared for the quarter, as expected.

QoQ, 3QFY20 recorded a significant turnaround to core PATAMI of RM87.8m compared to core loss of RM29.3m in 2QFY20 as it rebounded from the various MCOs in the preceding quarter which was further boosted by sales-tax exemption. Total Toyota & Lexus and Perodua unit sales soared higher at 18,870 units (>100%) and 70,842 units (>100%), respectively. Its equipment segment (+38% PBT) and M&E segment (+153% PBT) also contributed higher profit with the gradual re-opening of the economy.

YoY, 9MFY20 core PATAMI plunged 56% mainly due to lower Automotive segment pre-tax profit contribution (-65%), suffering from: (i) the closure of businesses during MCO starting 18th March 2020, until 4 th May 2020, and (ii) higher Bukit Raja plant depreciation (+9%). Toyota & Lexus and Perodua recorded lower unit sales at 37,339 units (-23%) and 145,012 units (-19%), respectively. Furthermore, the equipment segment (-22%) faced a challenging market for both Heavy and Industrial Equipment especially during the MCO. This was, however, cushioned by: (i) higher M&E segment profit contribution (+26%), mainly due to cost optimisation strategy, and supported by ramp-up production of fan cases by Aerospace sub-segment (24-hour operations), but the closure during MCO also affected its performance.

Outlook. UMW derives its earnings mostly from: (i) the stream of new models (Vios and Yaris facelifted) launching in December 2020 and supported by Toyota RAV4 CBU and Lexus UX200, Toyota Hilux Rogue with two new CKD models expected, namely the Innova & Fortuner, expected in Jan 2021, with order-taking in 4QCY20), and (ii) its 38%- owned Perodua. For Equipment division, the group will continue to leverage on its partners (KOMATSU & TICO)’s strengths and new collaborative robots (“Cobots”) venture with Universal Robot A/S, while UMW Aerospace has turned profitable in 2019.

We increased FY20E and FY21E CNP by 87% and 24%, respectively, to reflect stronger contribution from Automotive division and associate Perodua.

Upgrade to OP (from MP) with a higher TP of RM3.30 (from RM2.70) based on 17x FY21E EPS (at 5-year historical mean PER).

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

Source: Kenanga Research - 26 Nov 2020