• MBM takeover offer allowed to lapse

• Toyota to hit major inflection point in FY19F

• Rides on national car offensive next year

• Maintain BUY at a lower TP of RM6.50 (previously RM7.11)

UMW-MBM deal allowed to lapse. The offer to buyout MBM’s major shareholder (Medbumikar’s 50.1% stake in MBM Resources, which would have led to an MGO) has been allowed to lapse and UMW is no longer pursuing the acquisition. While it would have been an opportunity for MBM’s minority shareholders to exit a value-trap, unfortunately MedBumikar has not responded to the offer. This also means UMW’s shareholding in Perodua will remain status quo at 38%. UMW has also decided not to pursue another 10% Perodua stake from PNB. As mentioned yesterday, the deal was merely an icing to our previous contrarian BUY call and the sharp price retracement in the past 1 month more than reflects the deal falling through.

Hitting a major inflection point. Fundamentally, we expect Toyota market share to hit a major inflection point in FY19F as the new Bukit Raja plant comes on-stream from 1Q19. We forecast Toyota TIV to rise 13%yoy to 81K in FY19F and market share to expand to close to 14% from 12% in FY18F. This is expected to be driven by the new Vios and more importantly, the all-new Yaris (Honda Jazz competitor) which fills a major gap in UMWT’s model mix. Toyota TIV should rise further to ~90K in FY20F. UMWT is targeting to regain pole position in the non-national segment over the mid-term.

New Rush locally assembled. Unlike the previous generation Rush which was brought in as CBU, the latest version is locally assembled, contract manufactured by Perodua. Pricing is slightly cheaper than the outgoing model, but the new Rush is highly specced (Toyota active safety features, 7 airbags). UMWT is targeting 3000-4000 annual sales volume, 4%-5% of our FY19F Toyota TIV.

Rides on national car offensive. Both Proton and Perodua will be launching their respective SUVs within the next 2-8 months. These are important models that fill up gaps in their respective model mix. UMW is one of the major beneficiaries being the largest shareholder in Perodua with a 38% stake. Our FY19F 10% earnings growth for Perodua has yet to factor in the new SUV, which could drive a gap-up in market share. For now, we forecast conservative flattish market share in FY19F.

Re-affirm BUY on UMW at a lower TP of RM6.50/share (from RM7.11/share) following earnings revisions in this report. We had also updated the latest carrying value of the non-listed O&G assets in our SOP valuation. Key catalysts: (1) A deleveraged balance sheet post UMWOG demerger allows room for acquisitive growth and resumption of dividend payout (2) Reversal of prior years’ market share loss, structural cost reduction and pricing advantage from UMW Toyota’s EEVfocused strategy (3) Redevelopment of UMW’s 830 acres Serendah land which will unlock value of the asset – easily worth 40sen/share on our estimates (4) A more than quadrupling of M&E division earnings once its aerospace division reaches full scale production.

Source: MIDF Research - 1 Nov 2018