9MFY21 turned into the red with core losses of RM27.6m compared to core profit of RM79.7m in 9MFY20 and our/consensus core PATAMI of RM170.8m/RM223.4m. We deemed the results below our expectation on worse-than-expected lockdown impact on its core business. As such, we cut our FY21E CNP by 56%, but maintain FY22E CNP on back-logged spill-over recovery reaching above 100k units from both Toyota and Perodua combined. Maintain MP with unchanged TP of RM3.20.

Results highlights, YoY, 9MFY21 turned to the red with core losses of RM27.6m compared to core profit of RM79.7m in 9MFY20 mainly due to significant losses recorded in 3QFY21 following the imposition of the Full Movement Control Order (FMCO). This was despite higher sales (+17%) recorded from an earlier stronger 1HFY21. Automotive segment showed higher sales (+24%), and segmental profit (+45%) in concurrence with steady Toyota & Lexus, and Perodua unit sales of 46,118 units (+24%) and 119,093 units (-18%), respectively. On the other hand, Equipment segment recorded stronger overall sales (+16%), but lower segmental profit (-8%) affected by Myanmar operation due to political instability (Myanmar typically registers higher margin for parts sales compared to other region). M&E segment sales (- 26%) was negatively affected by lower production demand for fan cases amidst travel restrictions.

QoQ, 3QFY21 plunged further into core losses of RM77.2m compared to core losses of RM30.4m following the implementation of the FMCO from 1st June 2021 until mid-August 2021 with all segments recording lower sales and segmental profit. Toyota & Lexus, and Perodua recorded lower unit sales at 11,856 units (-29%) and 21,803 units (- 45%), respectively.

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 and Fortuner (Feb 2021), Toyota Corolla Cross (CBU 25 Mar 2021, CKD 2HCY21), Harrier (8th April 2021), and (ii) its 38%-owned Perodua with the all-new launches of Perodua Ativa, refreshed ARUZ, and the recent face-lifted Myvi. 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 wide roll-out of vaccines and the implementation of travel bubbles.

Cut FY21E CNP by 56%, unchanged FY22E CNP. We cut our FY21E CNP by 56% due to worse-than-expected lockdown impact on its core business. We maintain FY22E CNP on back-logged spill-over recovery reaching above 100k units from both Toyota and Perodua combined.

Maintain MP with unchanged TP of RM3.20 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 - 30 Nov 2021