• FY18F/19F earnings raised 1%/9%

• FY19F Perodua TIV raised but Toyota TIV trimmed slightly

• Selective models to be impacted by national car launches

• Re-affirm BUY at unchanged TP of RM6.60

Earnings revised up. We raise our FY18F/19F earnings for UMW by 1%/9% to RM373m/RM507m. This is to reflect changes to our forecast TIV for Perodua and Toyota.

Perodua TIV raised. In our sector report today, we raised Perodua TIV by 6%/10% to 227K/241K for FY18F/19F. FY18F is raised to reflect stronger than expected demand during the tax-holiday period (and some carryover into the post tax-holiday period given disruption to the MyVi production). Our FY19F is raised as we factor in the Aruz into our projections. Perodua is targeting 2000-2500 monthly unit sales of the Aruz accounting for 10% of our FY19F Perodua TIV. We factored in allowances for some cannibalisation of the Alza and weaker underlying volumes given the absence of the tax-holiday enjoyed last year.

Toyota TIV trimmed. We cut FY18F Toyota TIV by 5% to 66K units given potential shortfall against our earlier forecast of 71K units. This is given the run out of the current generation Vios towards end-2018 ahead of launch of the new generation Vios in 1Q19. We also trim slightly our FY19F Toyota TIV by 3% to 78K units (from 81K earlier) to factor in some impact on the current Toyota line-up from launch of the Aruz. We anticipate the lowest variant of the new generation Vios as well selective variants of the Avanza to be impacted – these models (selective variants) historically accounted for an estimated 12% of Toyota TIV. For the new Vios, UMW has done away with the lowest manual variant, previously priced at around RM72K. The lowest variant of the new Vios is now priced at RM77K, moving the majority of Vios variants away from the Aruz’s price points.

Potential impact from X70. We also expect Proton’s X70 to impact selective variants of Toyota’s Innova and Altis models, which are estimated to account for 19% of Toyota TIV. However, we don’t expect the Innova to be cannibalised in a big way since it is a 7-seater people mover which is unlikely to be substituted by the smaller, 5-seater X70.

Bukit Raja is a game changer. UMW intends to plug the gaps in its model mix once the new Bukit Raja plant comes on stream in 1Q19. The first model to be produced will be the new Vios followed by another Bsegment model (the Yaris) and a potential 3rd model. At 70% automation rate and 50K capacity on single shift (to double UMW Toyota’s current capacity), UMW aims for Bukit Raja to hit at least 80%- 90% utilisation within its 1st year of operations, sufficient for Bukit Raja manufacturing operations to be profitable. Bukit Raja will allow UMW to introduce new models (to fill up the current gaps in the B-segment hatchback and SUV segment) and localise more of the current model line-up to benefit from tax advantages. We expect 30K-35K FY19F TIV from the new Vios and around 4K TIV from the new Camry.

Source: MIDF Research - 16 Jan 2019