We expect 3QFY19 CNP to come in between RM85 to RM90m, bringing 9MFY19 CNP to between RM274.3m and RM279.4m which is within 73% to 75% of our estimate. Weaker car sales seen were due to a seasonally shorter working quarter and lesser promotional activities. BUY with TP of RM5.45 based on 14x FY20E EPS and recent share price weakness offers an attractive entry opportunity. We like the stock for its: (i) stream of all-new models (especially Vios, and Yaris) with better margins, and (ii) its deep value stake in 38%-owned Perodua.

We expect 3QFY19 earnings to weaken attributed to weaker UMW Toyota Motor’s sales of 19,908 units (-25% YoY) due to a higher base from the historic tax holiday. 70% of 3QFY19 sales came from the combination of the all-new Toyota Vios (launched on 24th January 2019), all-New Toyota Yaris (launched on 19th April 2019) and Toyota Hilux.

Overall, group’s CNP is backed by 38%-owned associate, Perodua which recorded sales of 56,972 units (+11% YoY), bringing in 9MFY19 sales to 178,668 units (+6% YoY) driven by the all-new Perodua Myvi and the all-new Perodua ARUZ (25k bookings, 22.2k delivered). Our price assumption for 3QFY19 CNP is based on vehicles’ average selling price for the past three quarters. We expect better margin from the cost savings derived from higher localisation rate in the all-new Vios and Yaris (at 80%, compared to previous generations of 50%) as well as less discounting promotion for the outgoing-models to cushion the new Bukit Raja plant’s depreciation cost (estimated at RM60 to RM70m/year, for 30 years).

UMW Toyota targeted higher 2019 sales at 75k units (+15%) for Toyota and Lexus models. UMW has launched the all-new Toyota Vios (RM78k-RM88k) on 24th January 2019, all-New Toyota Yaris (RM72k-RM84k) on 19th April 2019, A90 Toyota GR Supra (RM568k) on 20th September 2019 and the all-New Toyota Corolla Altis (RM129k-RM137k) on 9th October 2019. Elsewhere, 38%-owned Perodua is targeting higher 2019 sales of 235k units (+3.4%), from the all-new MyVi and ARUZ. For Equipment division, the group will continue to leverage on its partners (KOMATSU & TICO)’s strengths, while UMW Aerospace is expected to reach breakeven level by FY20.

Source: Rakuten Research - 31 Oct 2019