Automotive, equipment businesses drag UMW’s 1Q20 earnings

The MCO led to a drastic decline in vehicle sales, but hopes demand to recover post-MCO, says the group


UMW Holdings Bhd’s earnings for the first quarter ended March 31, 2020 (1Q20), plunged almost half as two of its core businesses took a hit from the effects of Covid-19.

Its net profit slumped 48.77% year-on-year (YoY) to RM44.32 million from RM86.5 million recorded in the same period last year in line with the decrease in revenue, the group said in a filing to Bursa Malaysia yesterday.

Revenue for the quarter dropped almost a quarter or 23.77% YoY to RM2.12 billion due to lower sales in the automotive and equipment businesses, following disruptions caused by the Covid-19 pandemic.

UMW said revenue for the automotive segment was 26.85% lower at RM1.58 billion compared to RM2.16 billion reported in the corresponding quarter last year, mainly due to lower numbers of vehicles sold in 1Q20.

The group said the Movement Control Order (MCO) led to a drastic decline in vehicle sales, but hopes demand to recover post-MCO.

“This is supported by the downward revision of total industry volume, from 607,000 units to 400,000 units, forecasted by the Malaysian Automotive Association in April,” it said.

The group plans to launch a pipeline of exciting new models to soften the impact of a market slowdown.

“The segment should also benefit from the recent announcement of 100% sales tax exemption on completely knocked-down vehicles and 50% exemption for completely built-up vehicles effective from June 15, 2020, to Dec 31, 2020,” it said.

Sluggish demand for both heavy equipment and industrial equipment businesses arising from challenging market conditions in 1Q20 cut the group’s revenue for the equipment segment to RM289.2 million from RM382.8 million in 1Q19.

“The heavy equipment sub-segment may face sluggish domestic demand due to the delay in the implementation of projects caused by the Covid-19 pandemic and slowdown in some sectors it operates in.

“The industrial equipment subsegment will continue to focus on expanding its equipment rental business, while extending recovery packages to its customers, especially those in the small and medium enterprises to cushion the impact of Covid-19 on their businesses,” it said.

However, the manufacturing and engineering segment posted a revenue of RM248.5 million compared to the RM237.1 million reported in 1Q19, attributable to a higher volume of fan cases delivered by its aerospace subsegment in 1Q20.

“While we are expecting a downward impact to the aerospace subsegment following the Covid-19 pandemic, the group is partially sheltered by firm fan case orders received for the rest of the year,” it said.

The group pledged to continue to focus on strengthening its core business segments and strategic cost optimisation initiatives to improve its business performance and operational productivity.

“Amid the unprecedented challenging business environment, the group will strive to maintain its performance in 2020,” it added.

UMW shares closed 5.02% or 14 sen lower to RM2.65 yesterday, valuing the group at RM3.1 billion.