UMW likely to sustain sales performance

PETALING JAYA: UMW Holdings Bhd is expected to sustain its sales performance following a good start to in the first quarter ended March 31, 2023 (1Q23) where the automotive group saw growth across all segments.

According to MIDF Research, UMW’s management had updated that as of May, Perodua is still sitting on 192,000 bookings, while Toyota had 49,000 bookings, which translates to an average six to seven months of waiting list.

“The order backlog remains largely similar to that as at end-March, signalling still strong new booking momentum,” it said, adding that management is keeping its 2023 sales target of 314,000 for Perodua and 93,000 for UMW Toyota.

MIDF Research said UMW foresees the sector’s total industry volume (TIV) sustaining above the 700,000 mark this year, which echoes the research firm’s view of 2023 forecast TIV potentially hitting 713,000 units.

UMW’s net profit was up 32.9% to RM134.46mil in 1Q23 and this came on the back of revenue rising 20% to RM4.4bil.

The auto division saw a 5% earnings improvement on the back of stronger associate’s contribution, given stronger sales volume and better margins from higher production.

The group’s equipment division, meanwhile, saw strong top line and pre-tax profit growth on the back of strong demand in local and overseas markets, plus reaped stronger margins driven by cost optimisation initiatives within this segment.

As for its manufacturing and engineering (M&E) division, MIDF Research noted that top line grew 43% year-on-year, while pre-tax profit had more than doubled.

On UMW’s new rear-case manufacturing plant, management shared that it is expected to begin commercial operations in 2025.

The plant involves capital expenditure of RM65mil, mainly to acquire chemical milling capabilities, while the supply contract is valued at RM1bil over a 15-year period.

“At present, the rear fan case is imported from overseas and assembled into a complete fan – localisation of the rear fan case is expected to improve UMW Aerospace’s margins from FY25 onwards,” said MIDF Research, which has a target price (TP) of RM5.28 on the counter.

The research firm said the acquisition of chemical milling capabilities is expected to be a game changer for UMW Aerospace, as it will be the first in South-East Asia with this capability.

This could open doors for the manufacturing of other precision aero components such as jet engine after burners and aircraft wing skin panels.

Meanwhile, RHB Research, which also expects UMW’s order backlog to continue delivering strong earnings in the subsequent quarters, said the current price of its shares implies an attractive FY23 forecast 9.5 times price-to-earnings.

It maintained a “buy” call with a TP of RM5 that translates to 37% upside with about 4% yield.

Downside risks include weaker-than-expected orders, deliveries and margins, and a stronger-than-expected US dollar-ringgit exchange rate.

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