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Stay NEUTRAL, new MYR3.64 TP from MYR3.29, 9% upside with 2% yield. 1Q22 net profit beat our and Street’s expectations, mainly on the stronger-than-expected automotive segment and contributions from associate Perodua. Orders remain robust for both Toyota/Lexus and Perodua, while management pointed out that chip shortages are abating. We lift FY22 sales volume assumptions for both marques but retain our call on the stock, as we stay cautious on UMW’s ability to pass on higher costs. This report marks the transfer of coverage to Jim Lim.
1Q22 core PATAMI of MYR108m beat our and Street’s expectations at 38% and 35% of full-year estimates. The deviation was on stronger-than- expected UMW Toyota (UMWT) and Perodua contributions – lifted by stronger-than-expected car sales. Other segments were in line.
Results highlights. 1Q22 revenue jumped 24% YoY, lifted by the automotive segment (+28%). This was driven by a 31% YoY rise in Toyota units sold, fuelled by the continued Sales & Service Tax (SST) exemption and production resumption. Associates contribution rose 10% on Perodua’s 6% increase in vehicles sold and against a soft 1Q21 that had movement restrictions. Despite the higher PBT, a higher minority interest weighed in, and core earnings rose by a relatively lower 15%.
Outlook. We gathered that vehicle orders across both UMWT and Perodua remain strong with a combined backlog order of c.100,000 units. Inventory levels across both marques remain low, as supply continues to catch up with demand. There is limited exposure to China across both marques, as parts originating from there can be sourced elsewhere. Hence, UMW is relatively protected from a prolonged lockdown in China, in our view.
Inflation and strengthening USD. To pass on some of the higher costs to customers, UMWT may consider raising car prices in 3Q22. It is encouraging that, despite minor price increases on 1 Apr, it continued to receive strong orders. However, we note that orders may have remained strong as customers rushed to take advantage of the SST exemption. In response to the strengthening USD/MYR, UMWT is negotiating with its principal and is reducing costs to mitigate the FX impact.
Forecast. We lift FY22F earnings by 10% by raising Toyota/Lexus volumes to 78,000 units (UMWT: 73,000, maintained) and Perodua volumes to 240,000 units (Perodua: 247,800, maintained) for this year. The higher earnings lifts our TP to MYR3.64, which includes an ESG discount of 2% for its below-median score of 2.90. Our TP is based on an unchanged 13x FY22F target P/E on normalised FY22F EPS (ex-Cukai Makmur impact). We maintain our NEUTRAL rating on the stock despite our higher vehicle sales volume assumptions, as we are cautious of the possible impacts of costlier car parts on UMW’s auto margins, given Toyota and Perodua’s limited ability to pass on higher costs. Key upside risks: Shorter-than- expected supply chain disruptions and stronger-than-expected sales post tax-exemption. The opposites are 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....