1QFY22 core PATAMI of RM99.4m (+59%) came in above our/consensus expectation at 34%/32% of full-year estimates on stronger-than-expected performance, especially from associate Perodua. As such, we increase FY22E/FY23E CNP by 24%/22% on stronger back-logged booking despite SST-exemption period drawing closer to an end. Upgrade to OP from MP with a higher TP of RM4.40 (from RM3.20).

1QFY22 above expectations. 1QFY22 core PATAMI of RM99.4m (+59%) came in above our/consensus expectation at 34%/32% of fullyear estimate on stronger-than-expected performance, especially from its associate Perodua.

YoY, 1QFY22 core PATAMI surged 59%, concurrent with stronger sales (+24%) with (i) overall stronger performance in all three business segments with the transition to endemic phase and full re-opening of the economy, and (ii) lower effective tax rate of 19.6% (1QFY21: 24.2%) from various tax incentives and benefits enjoyed by the group. Automotive segment showed higher sales (+28%), and segmental profit (+41%) in concurrence with steady Perodua and Toyota & Lexus unit sales of 61,624 units (+6%) and 22,447 units (+31%), respectively. On the other hand, Equipment segment recorded stronger overall sales (+12%) with a better segmental profit (+45%) as demand in both local and overseas markets continued to improve post lockdown with projected increase in activities following higher commodity prices. M&E segment sales was weaker (-1%), but with stronger segmental profit (+27%) due to the lower contribution from disposal of Auto Components sub-segment subsidiary with improvement in operating cost post- disposal, but Lubricant sub-segment still showed weak demand due to lockdown in certain overseas markets while Aerospace is still in a loss from the slowdown during the pandemic phase earlier.

QoQ, 1QFY22 core PATAMI plunged 60% in line with weak sales (flat) as 4QFY21 is a strongest quarter of the FY seasonally and there was also a recognition of deferred tax assets (DTA) of RM140m in relation to investment tax allowance which was approved in 4QFY21.

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, Toyota Corolla Cross Hybrid, Harrier, 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 endemic phase of COVID-19 and the easing of travel arrangements.

FY22E/FY23E CNP increased by 24%/22%, on stronger back-logged booking despite SST-exemption period drawing closer to an end.

Upgrade to OP from MP with a higher TP of RM4.40 (from RM3.20) based on unchanged PER of 13x (at -1.0SD to 5-year historical mean PER) on roll-over valuation year of FY23E (from FY22E).

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

Source: Kenanga Research - 25 May 2022