Review

• UMW Holdings Bhd (UMW)’s 9MFY19 results came in below expectations. Excluding all exceptional items, 9MFY19 core net profit increased by 6.0% YoY to RM205.6mn. This accounted for 49% and 54% of our and consensus’ full-year estimates, respectively. The deviation was mainly due to lower contribution from the Automotive division.

• Automotive – 9MFY19 revenue decreased by 0.8% YoY due to lower sales unit. Toyota sold 47,608 units in 9MFY19 (-9.6% YoY) while Lexus registered lower sales of 543 units (-36.5% YoY). Meanwhile, it’s 38% associate, Perodua recorded a sales unit growth of 6.3% YoY to 178,754 units. As a result, PBT was slightly lower by 1.0% YoY to RM415.4mn.

• Equipment – 9MFY19 revenue decreased by 5.5% YoY to RM1,080.1mn. PBT decreased by 14.1% YoY to RM108.4mn, dragged by lower revenue from both Heavy and Industrial Equipment sub-segments.

• Manufacturing & Engineering (M&E) – This segment registered a PBT of RM30.9mn compared to RM12.1mn recorded last year. The commendable results were mainly underpinned by higher delivery of fan cases to Rolls-Royce and higher demand of Auto-components products.

• The group has declared a special dividend of 4 sen/share for the quarter under review.

Impact

• Earnings for FY19- FY21 have been adjusted lower by 8.3% - 27.9% after imputing a lower sales volume into our model. We now expect the group to register a sales volume growth of between 2% - 8% in FY19-FY21.

Outlook

• Management has cut FY19 car sales target from 75k units to 72k units. The business remains competitive due to wider customers’ choice and prudent spending by both consumers and businesses.

• The Equipment segment’s outlook remains challenging as demand in the construction, manufacturing, mining and logging sectors are likely to be sluggish for the rest of the year.

• While for the manufacturing & engineering businesses, the demands for Auto-components and lubricant products are expected to remain stable over the near term.

• Additionally, contribution from the aerospace division also expected to improve due to increase delivery of fan cases to Rolls-Royce for the remaining of the year and expected to be profitable in FY20.

Valuation

• UMW’s SOP valuation is revised lower to RM4.37/share after the earnings adjustments. The stock currently trading at CY20 P/E of 12.8x. Downgraded to SELL from Buy

Source: TA Research - 29 Nov 2019