RHB Research said the 15-year contract with a supply value of RM1bil with RR translates to RM67mil per annum, or about 7% of the group’s financial year 2022 (FY22) M&E revenue.
PETALING JAYA: Analysts are optimistic of UMW Holdings Bhd
’s recent contract win from Rolls-Royce (RR) and expect it to support the group’s growth prospects, particularly its manufacturing and engineering (M&E) segment.
RHB Research said the 15-year contract with a supply value of RM1bil with RR translates to RM67mil per annum, or about 7% of the group’s financial year 2022 (FY22) M&E revenue.
“The new contract allows UMW Aerospace to manufacture rear cases for RR’s Trent 1000 and Trent 7000 aircraft engines.
“We are positive on this development as it signals the recovery of UMW’s aerospace segment,” said the research house in a report yesterday.
It noted that this development marks UMW’s second aerospace contract with RR, with the first being a RM830mil 25-plus-five-year contract secured by UMW in August 2015.
“The contract requires UMW to invest up to RM65mil to set up chemical milling and related processes, which we think is already in the company’s RM115mil FY23 capital expenditure for the M&E business,” said RHB Research.
In February, UMW said aerospace volumes increased by nearly 40% year-on-year, which translated to improvements in the plant’s utilisation rate and was up by more than 40% in 2021 to between 50% and 60% in 2022.
For 2023, the group estimates the figure to be around 70% to 75%.
“UMW does not separately disclose the aerospace segment’s profit and loss, as it is categorised under its M&E business.
“In FY22, the business achieved a revenue of RM984mil on a pre-tax profit margin of 6.7%, as revenue steadily grew in the second half of 2022, partially driven by the aerospace segment, according to management,” it said.
RHB Research maintained a “buy” call for UMW with a target price of RM5, forecasting a M&E revenue of RM1.1bil with a pre-tax profit margin of 10%, underpinned by the recovery of the aerospace segment.
On the other hand, Hong Leong Investment Bank (HLIB) Research maintained a “buy” call with a target price of RM4.25, on the back of the group’s ability to ride onto higher automotive order backlogs and the continued economic recovery in the quarters ahead.
“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 RR Trent 1000 and Trent 7000 aircraft engines.
“We understand that UMW Aerospace is currently ramping up production (recovery from pandemic) and expected to turn around in 2023.
“The new contract marks another milestone for UMW to gain a foothold in the high-value aerospace supply chain,” said HLIB Research.
