UMW Holdings reaffirms ‘Hold’ call with unchanged TP


AFFIN Hwang Investment Bank Bhd has maintained a ‘Hold’ call on UMW Holdings Bhd with an unchanged target price (TP) of RM4.75, based on its sum-of-parts valuation.

The bank made its call due to UMW’s higher than expected contribution from the aerospace segment, a strong rebound in Toyota sales and a pick-up in construction and mining activities which would spur equipment sales, as well as the strengthening of the ringgit.

UMW’s automotive division’s first nine-month (9M19) profit before tax (PBT) dipped marginally to RM415 million or by 1% year-on-year (YoY) due to lower sales volume of Toyota vehicles which fell by 10% YoY to 48,000 units, but was boosted by higher sales at Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which was up 6% YoY to 178,800 units.

UMW Toyota Motor Sdn Bhd (UMWT) plans to launch four brand new SUV models in 2020 with the all-new Toyota RAV4 expected to be the first.

UMWT has not firmed up its sales target for 2020, but aims to capture at least a 12% market share following the first 11 months of 2019’s market share of 11.3%, Affin Hwang noted in a recent research note on the company.

The investment bank stated UMW’s manufacturing and engineering (M&E) segment will likely contribute positively in 2020, after 9M19 PBT more than doubled to RM31 million compared to 9M18 PBT at RM12 million.

This is driven by better performance from the aerospace and auto-parts components.

UMW Aerospace Sdn Bhd (UMWA) has delivered more than 150 units of Trent 1000 fan cases to Rolls-Royce plc since production started in 2017, and it is expected the production of Trent 7000 fan cases will commence in the fourth quarter of 2020 (4Q20).

Despite the economic uncertainty and stiff competition in the automotive and equipment segments, UMW management is confident the M&E segment will contribute positively by 2020, Affin Hwang said.

The lacklustre demand in the equipment business saw 9M19 PBT declining by 14% YoY to RM108 million.

Growth could come from UMW’s intentions to further expand into the leasing business model, tap into the manufacturing and e-commerce sectors in Vietnam and increase its product offerings due to promising prospects for the industrial subsegment.

Furthermore, its heavy equipment subsegment may also venture into the leasing business model, implement an extended warranty programme and maintenance service contract, and have a wider product line-up and provide value added services.

UMW’s share price closed at 0.45% or two sen lower yesterday at RM4.47, giving it a market capitalisation of RM5.2 billion.