We anticipate UMW to perform within expectations this year as we expect slower 4Q sales post SST implementation. We believe that the proposed MBMR/Perodua takeover uncertainty has been removed following the lapsed of the proposals hence UMW will not be pursuing the acquisition and the rights issue. BUY with a Target Price of RM5.50 based on 17x FY19E EPS, which is the 5-year historical mean PER. Note that, the MBMR/Perodua takeover proposals have lapsed on 31st October 2018. 

We expect a stronger 3Q18 attributed to the stronger UMW Toyota Motor unit sales of 21,370 units (+12% QoQ, +37% YoY), however full effect was muted by slower 38%-owned Perodua sales at 51,105 units (- 17% QoQ, -2% YoY), from the short-term supply disruption for its all-new Perodua Myvi, which has been rectified recently. We expect slower 4Q sales post SST implementation but will be cushioned by the usual year-end promotion and special event, KLIMS 2018. 

As of to-date, UMW has launched the all-new Toyota CH-R, all-new Toyota Harrier, 3 new Lexus models, and recently, all-new Toyota Rush. UMW will launch all-new Toyota Camry in Nov'18 and one new model, which is not under its fleet now at their new plant (to start production in 1Q19), which we foresee the emergence of 2019 Toyota Yaris Hatchback.

Perodua's entry level segment (2018 sales target at 209k) continued to gain traction supported by the all-new Perodua MyVi (120k booking, 68k delivered) and expecting to launch the all-new Perodua SUV D38L in 1Q19. For Equipment, the group will continue to leverage on partner's (KOMATSU & TICO) strength to boost product range and market penetration, while, expanding total solutions services. UMW Aerospace, under the M&E segment, is expected to trim its losses to c.RM20m level in FY18/FY19 (from losses of c.RM60m in FY17) before reaching breakeven level in FY20 considering that some front-loaded investments need to be amortised. 

Source: Rakuten Research - 1 Nov 2018