• Stay NEUTRAL, with new MYR3.35 TP from MYR3.10, 1% upside. 9M22 earnings beat our and Street’s estimates, mainly on stronger-than-expected unit sales and revenue. While the USD/MYR has strengthened 6% in 3Q22, UMW Toyota’s (UMWT) cost containment measures have helped it limit the impact. Despite car orders improving MoM and supply constraints easing, we maintain our cautious view on 2023’s outlook.

• Results beat. 3Q22’s MYR115m profit brought 9M22 earnings to MYR326m, exceeding expectations at 79% and 86% of our and Street’s full-year estimates. The deviation was mainly on higher-than-expected unit sales and, hence, revenue. UMW pleasantly surprised with an interim DPS of 3 sen, signalling that it will strive to gradually increase its payout ratio. Hence, we lift our FY22F-24F DPS to 10-9 sen from 5.8 sen each.

• Results highlights. Revenue rose 9% QoQ, mainly on automotive revenue (+10%) due to a combination of higher volumes (+5%) and selling prices. Automotive’s PBT margin softened 10% on UMWT’s higher COGS (its PBT margin softened 0.2ppts on higher USD/MYR) and lower associate contributions – due to Perodua’s higher materials and labour costs.

• Perodua outlook. Management has indicated that Perodua has secured sufficient chip and component supplies for the rest of 2022. Given that Perodua’s October plant utilisation softened to 77% due to a week-long scheduled plant shutdown, we expect Perodua to continue operating at close to full capacity for the rest of the year to deliver outstanding Sales & Service Tax (SST)-exempt orders, which Perodua can likely fulfil before end Mar 2023. Since dipping in July, Perodua’s orders have continued to recover MoM and it currently has an outstanding orderbook of 200k. In light of the robust orders, we revise 2022F-2024F unit sales to 265k-230k from 250k-220k. Separately, Perodua is striving to ramp up its exports but, given its limited supplies to cater to domestic demand and lack of major expansion plans, we think this will take some time to bear fruit. We believe the hot- selling Alza and its future 2023 model could support orders moving forward.

• UMWT outlook. UMWT has also secured sufficient supplies for 2022, which we think allows it to fulfil most SST-exempt orders before end Mar 2023. In October, 10M22 sales of 80,152 units surpassed its new target of 80k units. We also lift our 2022F unit sales to 98k from 88k.

• Forecasts. After accounting for higher automotive unit sales and revised USD/MYR assumptions (Figure 4), we lift FY22F-24F earnings by 8-9%. The higher earnings lift our TP to MYR3.35 based on an unchanged 12x FY23F P/E and 2% ESG discount. While we expect a strong 4Q22, we maintain NEUTRAL on UMW, as we are still cautious on softening UMWT and Perodua sales in FY23, especially given Perodua’s disproportionate vulnerability to macroeconomic headwinds.

• Key risks include weaker-than-expected orders and deliveries, softer-than-expected margins, and stronger-than-expected USD/MYR. The converse represents the key upside risks.

Source: RHB Research - 30 Nov 2022