UMW is selling 140 acres of land in UMW High Value Manufacturing Park (HVM) in Serendah, Selangor, to Shanghai Stock Exchange-listed LONGi Green Energy Technology Co Ltd for RM304.9m cash. Interest income from the disposal proceeds would boost its FY23F earnings by 3%. We maintain our forecasts (pending the completion of the deal), TP of RM4.40 and OUTPERFORM call.

UMW is selling 140 acres of land in UMW High Value Manufacturing Park (HVM) in Serendah, Selangor, to Shanghai Stock Exchange-listed LONGi Green Energy Technology Co Ltd (LONGi) for RM304.9m cash. The land plot is a part of 861-acre industrial park in Serendah, Selangor, called UMW HVM Park which offers features such as security, sustainability and integrated Industry 4.0 infrastructure and technologies. Currently, about 84% of the industrial park’s southern zone has been taken up, with 40 companies having committed to setting up their manufacturing operations at the park.

Fair transaction price. The transaction values the land at about RM50 psf. In comparison, industrial land parcels in proximity are listed ranging from RM55 psf to RM70 psf. The land is currently part of larger high value manufacturing park ecosystem under UMW Development Sdn. Bhd. LONGi indicated that the purchase of the land is to expand its operations and increase the production volume to cater to growing demand. LONGi is the world’s largest manufacturer of monocrystalline silicon wafers and the largest producer of solar cells in Malaysia.

Impact on earnings. UMW will book in a one-off gain of RM292.2m from the sale which is earnings accretive. Interest income from the disposal proceeds will boost its FY23F earnings by 3%. The proceeds will also boost its net cash to RM1,230m from RM925m. We maintain our forecasts pending the completion of the deal.

We like UMW for: (i) the mass-market marques under its vehicle dealership business, i.e. Toyota and Perodua, but not without highmargin models such as Perodua Alza and Toyota Veloz, (ii) the strong earnings visibility at its vehicle dealership business backed by order backlogs of >300k units of vehicles, and (iii) it being a cyclical and recovery play as it is in the heavy/industrial equipment business, apart from manufacturing of aero engine fan cases.

Toyota and Perodua have sales targets of 80,000 units (+12%) and 247,800 units (+30%) for 2022, respectively. Its equipment division will continue to work with partners Komatsu and TICO. It has also made a foray into the collaborative robot or cobots space (cobots are robots designed to work alongside human on the factory floor) with partner Universal Robot A/S, while UMW Aerospace will benefit from the resumption of air travel globally.

Forecasts. Maintain OP with a TP of RM4.40 based an ascribed FY23F PER of 13x, which is at a premium to the auto sector’s average forward PER of 11x to reflect its dominant position in the auto industry with an aggregate (including those under its associates) market share of >50%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, (ii) supply chain disruptions, (iii) escalating input costs, and (iv) a global recession hurting demand for industrial/heavy equipment

Source: Kenanga Research - 1 Sept 2022