Levelling up: Tengku Zafrul (in light blue) being briefed by the UMW Aerospace management team — FAIHAN GHANI/The Star
KUALA LUMPUR: UMW Holdings Bhd
has gained another foothold in the high-value aerospace supply chain following the signing of a 15-year contract with Rolls Royce to manufacture rear cases for the Trent 1000 and Trent 7000 aircraft engines.
International Trade and Industry (Miti) minister Tengku Datuk Seri Zafrul Abdul Aziz made the announcement yesterday that UMW's aerospace arm, UMW Aerospace Sdn Bhd, bagged its second contract with Rolls Royce with a potential investment of up to RM65mil.
Accordingly, UMW Aerospace will set up chemical milling and related processes to manufacture the rear case at its existing facility in UMW High Value Manufacturing Park in Serendah and is expected to commence operation in 2025.
According to Malaysian Industrial Development Finance (MIDF) Research, the capex of RM65mil should be easily manageable given UMW's gross cash of RM2.8bil as at 4QFY22.
It noted that the manufacturing of rear fan cases involves the acquisition of the electro chemical milling capability.
The research house said UMW Aerospace will be the first Asean aero manufacturer to have this capability, which will allow it to expand its product range beyond fan cases to include other advanced aero components such as jet engine after burners and aircraft wing skin parcels.
UMW's expansion plans also comes at an opportune time as air travel has begun its post-Covid recovery.
"Reflecting this trend, utilisation rate at the existing UMWA plant is expected to recover to 70%-80% levels in FY23 from about 50% in FY22 whereby FY23F earnings is expected to exceed pre-pandemic levels.
"The expansion into rear fan case manufacturing underpins earnings momentum beyond the current aviation cyclical recovery, in our opinion," said MIDF in a note.
The research firm kept its "buy" call at an unchanged target price of RM5.28.
Meanwhile, Hong Leong Investment Bank (HLIB) Research also sees the contract as a positive development amid UMW Aerospace's recovery from the pandemic and expected turnaround in 2023.
"We are overall positive with the new contract award, complementing its existing 25+5 year contract (awarded in 2015) to manufacture and assemble fan cases for Rolls Royce Trent 1000 and Trent 7000 aircraft engines," it said.
The research house maintained its "buy" call on UMW with a target price of RM4.25.
