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Keep NEUTRAL and MYR3.29 TP, 7% upside and c.2% yield. Post our recent meeting with management, we were reassured of our view on UMW. Outstanding orders still span across 3-4 months for both marques and sales are expected to pick up in the upcoming months following production activities ramp up. YTD-February, Toyota’s sales are at 19% of our 75k units assumption while Perodua’s is at 15% of our 230k assumption. Management expects post Sales & Service Tax (SST) hangover to be over by July, supported by a slew of annual Merdeka discounts in August.
Uninspiring February sales on short working month. UMW-Toyota (UMWT) sold 6,432 units (-14% MoM) of Toyota/Lexus in February, bringing YTD sales to 13,960 units (+57% YoY). This is 19% of our FY22F 75k units assumption and we keep our forecast at this time as we continue to stay cautious on a weaker 2H22 post-SST holiday. Conversely, associate Perodua sold 17,421 units (flat MoM) in February, bringing YTD sales to 34,865 units (+4% YoY) at 15% of our FY22F 230k units assumption.
Likely short-lived SST hangover. We share management's view that the tax exemption will probably not be extended beyond 1H22. Where our views differ is the duration of the weakness in 2H sales. Management is slightly more upbeat on this, indicating that the hangover is likely to be over by August, supported by a slew of annual Merdeka discounts. Plans to ramp up production are already in motion to ensure deliveries of order backlogs before the end of the SST holiday. We understand that order backlogs for both marques currently span across 3-4 months.
Electric vehicle (EV) offerings. The Corolla Cross hybrid EV (HEV) launched in January marks UMWT's foray into the EV market. Management targets for this HEV variant to make up 40% of Corolla Cross sales, which in turn should make up 15% of FY22 sales. UMWT also has plans to introduce a battery EV model in 2022 but has not specified which one. Our research suggests it could be the Lexus UX 300e, given that the Toyota bZ4x is only coming to Malaysia in 2023.
No changes to key assumptions. We tweak our FY22F capex upwards to MYR850m from MYR400m, in line with management’s FY22 guidance of MYR845m. The higher capex is mainly for upcoming HEVs and planned new/facelift models in coming years. Our TP is based on an unchanged 13x FY22F target P/E on normalised FY22F EPS (excluding Cukai Makmur impact), close to UMW’s 3-year mean. Our TP includes a 2% ESG discount based on our in-house ESG score of 2.9 out of 4. We believe the stock is fairly priced at its current level, trading at 12.5x P/E, close to its 13x mean.
Upside risks: Shorter-than-expected supply chain disruption from chip shortage and floods, and stronger-than-expected sales post tax exemptions. The opposite represents key downside risks.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....