1HFY21 core PATAMI returned to the black at RM49.6m compared to core losses of RM8.1m in 1HFY20, and compared to our/consensus core PATAMI of RM190.3m/RM292.0m. We deemed the results below our expectation on harder-than-expected impact from closure of its factory in June 2021. We cut our FY21E CNP by 10% to account for lower Automotive profit contribution as the factory only restarted on 16th August 2021, but increase FY22E CNP by 9% on back-logged orders spill-over recovery. Maintain MP with a higher TP of RM3.20 (from RM3.00)

Results highlights, YoY, 1HFY21 core PATAMI turned into the black at RM49.6m compared to core losses of RM8.1m in 1HFY20 mainly due to higher overall sales (+48%) as last year was impacted by the closure of businesses during MCO starting 18 th March 2020 until 4th May 2020, and boosted by the current extension of sales tax exemption until 30th December 2021. Evidently, Toyota & Lexus, and Perodua recorded significantly higher unit sales at 34,111 units (+84.7%) and 97,290 units (+31.2%), respectively. On the other hand, Equipment segment recorded stronger overall sales (+21.1%) and segment profit (+6.6%) with improved demand in almost all regions, except for Myanmar operation due to political instability (Myanmar typically registers higher margin for parts sales compared to other region). M&E segment sales (-9.6%) was negatively affected by lower production demand for fan cases amidst travel restrictions.

QoQ, 2QFY21 plunged into core losses of RM30.4m compared to core PATAMI of RM80.0m in 1QFY21, tracking the plunge in sales (-17%) following the implementation of the FMCO from 1st June 2021 as well as from recognition of payment to holders of perpetual sukuk at RM34.8m, usually paid half-yearly. Toyota & Lexus, and Perodua recorded lower unit sales at 16,715 units (-2%) and 39,381 units (- 32%), respectively. This was cushioned by higher profit contribution from Equipment segment (+45%) driven by Industrials sub-segment margin sales. Nonetheless, M&E segment (-30.5%) continued to register weak demand for the fan cases amidst the pandemic.

Outlook. UMW derives its earnings mostly from: (i) the stream of new models such as Vios and face-lifted Yaris, Toyota RAV4 CBU, Lexus UX200, Toyota Hilux Rogue, Innova & Fortuner (Feb 2021), Toyota Corolla Cross (CBU 25 Mar, CKD 2HCY21), Harrier (8th April 2021), and (ii) its 38%-owned Perodua with the all-new launches of Perodua Ativa. 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 is expected to recover with the roll-out of vaccines and the implementation of travel bubbles. UMW has also unveiled its mobility CREST@2021 strategic framework, aiming for RM1b in PATAMI by 2030.

Cut FY21E CNP by 10%, increase FY22E CNP by 9%. We cut our FY21E CNP by 10% to account for lower Automotive profit contribution as factory only open its doors on 16th August 2021, but increase FY22E CNP by 9% on back-logged spill-over recovery.

Maintain MP with a higher TP of RM3.20 (from RM3.00) based on 13x FY22E EPS (at -1.0 SD of 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 - 27 Aug 2021