RESULTS UPDATE

Thursday, May 23, 2019

FBMKLCI: 1,603.74
Sector: Automotive

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

UMW Holdings Bhd TP: RM5.42 (-0.6%)

Last Traded: RM5.45
Positives Mostly Priced-In SELL
Angeline Chin Tel: +603-2167 9611 [email protected] www.taonline.com.my

Review Share Information

UMW Holdings Bhd (UMW) reported lower-than-expected 1QFY19 Bloomberg Code UMWH MK
Stock Code 4588
results. Excluding all exceptional items, 1QFY19 core net profit increased
Listing Main Market
by 3.9% YoY to RM86.7mn. This accounting for 16% and 17% of our and Share Cap (mn) 1,168.3
consensus’ full-year estimates, respectively. The lower-than-expected Market Cap (RMmn) 6,495.7
earnings were mainly due to lower margins and higher depreciation 52-wk Hi/Lo (RM) 6.95/4.20
12-mth Avg Daily Vol ('000 shrs) 1,697
charges. Estimated Free Float (%) 30.5

Automotive – 1QFY19 revenue increased by 15.2% YoY to Beta 0.7
RM2,162.5mn, underpinned by increased number of vehicles sold. Toyota Major Shareholders (%)
PNB - 48.65
sold 13,722 units in 1QFY19 (+8.2% YoY) while Lexus registered a flattish
EPF - 10.84
sales of 143 units. We understand that top selling models in 1Q19 were KWAP - 6.51
Vios (all-new model launched in January) and Hilux, which accounted for
68% of Toyota’s sales. However, PBT was marginally lower by 1.4% YoY Forecast Revision
FY19 FY20
mainly due to higher depreciation at the new Bukit Raja plant.
Forecast Revision (%) (17.2) (20.1)

Equipment – 1QFY19 revenue grew 2.6% YoY to RM382.8mn. Net profit (RMm) 462.4 479.7
However, PBT decreased by 6.2% YoY to RM42.2mn, dragged by a lower Consensus 499.5 561.1
profit margin as a result of competitive pricing for both Heavy Equipment TA's / Consensus (%) 93 85
Previous Rating Buy (Downgraded)
and Industrial Equipment businesses.

Manufacturing & Engineering (M&E) – This segment registered a Financial Indicators
PBT of RM2.3mn compared to a LBT of RM2.9mn recorded last year. FY19 FY20
Net Debt / Equity (x) 0.5 0.6
The commendable results were mainly underpinned by higher delivery of
FCPS (sen) 23.4 26.9
fan cases to Rolls-Royce and higher demand of products from KYB UMW Price / CFPS (x) 23.3 20.3
(manufactures shock absorbers and motorcycle suspension components) Core ROA (%) 3.9 3.7

No dividend was declared for the quarter under review. NTA/Share (RM) 3.2 3.5
Price/NTA (x) 1.7 1.5

Impact Scorecard

We revise downward our FY19 and FY20 earnings forecasts by 17.2% and % of FY
vs TA 16 Below
20.1% after imputing lower margins and higher depreciation charges. Also,
vs Consensus 17 Below
we now expect the Rolls-Royce plant to break-even by FY20 instead of
FY19. Share Performance (%)
Price Change UMWFBM KLCI
1 mth (2.3) (1.1)
Outlook 3 mth (7.3) (6.8)

All in, we believe UMW’s earnings outlook has turned bright, given 1) 6 mth 6.9 (5.4)
completion of its new plant in Bukit Raja, and 2) ability to launch new 12 mth (14.8) (13.1)

attractive CKD models such as C-HR.

(12-Mth) Share Price relative to the FBMKLCI

Nonetheless, the automotive segment is expected to remain competitive
due to a slew of new model launches in FY19 and stringent loan approvals,
which are expected to curb volume growth going forward.

Valuation

UMW’s SOP valuation is revised lower to RM5.42/share after rolling
forward our base year to FY20 and imputing new regional peer’s PE into
our valuation.

We believe that most of the positives have already been priced-in given
UMW’s rich valuation. UMW is currently trading at CY20 P/E of 13x,
Source: Bloomberg
which is a premium to its local peer average PER of 10x-12x and regional
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 23-May-19
peers' average of 4x-9x.

While we are positive on the long-term fundamentals of UMW, we believe
tougher near term competition in the automotive sector, especially in mid-
to-high-end sedan segment, may negatively affect UMW and offset gains to
be made in other segments. With that, we downgrade UMW to SELL
from Buy.

SOP Valuations
Equity Value
Segments PER (x) Reasoning
(RM mn)
Automotive 16 6,615 2x premium to peer's weighted average
Equipment 10 1,354 Regional peers' average
M&E 10 213 Regional peers' average
Serendah Land 627 40% discount to RNAV
Total Equity Value 8,810
Net debts (holding co.) (1,773.3)
Shares outstanding (mn) 1,168
Holding co. discount 10%
SOP TP (RM) 5.42

Figure 1: Quarterly Breakdown of Revenue and PBT

Revenue (RMmn) 1QFY18 4QFY18 1QFY19 % QoQ % YoY
Automotive 1,877.1 2,046.1 2,162.5 5.7 15.2
Equipment 373.0 397.8 382.8 (3.8) 2.6
Manufacturing & Eng. 168.5 242.5 237.1 (2.2) 40.7
Others 15.9 14.7 16.0 8.8 0.8
Elimination (19.1) (19.2) (23.7) (23.5) (23.9)

Pretax Profit (RMmn) 1QFY18 4QFY18 1QFY19 % QoQ % YoY

Automotive 125.9 125.5 124.2 (1.0) (1.4)
Equipment 44.9 26.0 42.2 61.9 (6.2)
Manufacturing & Eng. (2.9) 9.5 2.3 (75.4) nm
Others (13.7) (57.1) (28.0) 50.9 >-100

Figure 2: Vehicle Sales Breakdown (unit)

Source: Company, TA Research

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 23-May-19

Quarterly Results Analysis

FYE 31 Dec (RM mn) 1QFY18 4QFY18 1QFY19 % QoQ % YoY
Turnover 2,415.3 2,681.8 2,774.8 3.5 14.9
EBIT 78.7 51.0 77.5 52.1 (1.5)
Finance Cost (13.8) (32.1) (19.2) 40.1 (38.9)
Associates 56.3 96.3 65.6 (31.8) 16.7
Investment Income 21.6 21.5 17.7 (17.6) (17.8)
EI 11.6 (32.8) (1.0) nm nm
Pretax 154.3 103.9 140.7 35.3 (8.8)
Taxation (29.6) (29.8) (29.5) 1.2 0.5
MI (29.7) (23.3) (25.5) (9.3) 14.0
Reported net profit 95.0 50.8 85.7 68.7 (9.8)
Core net profit 83.5 83.6 86.7 3.7 3.9

Core EPS (sen) 7.1 7.2 7.4

DPS (sen) 5.0 2.5 0.0

EBIT Margin (%) 3.3 1.9 2.8

Pretax Margin (%) 6.4 3.9 5.1
Core net margin (%) 3.5 3.1 3.1
Tax Rate (%) 19.2 28.7 20.9
*Earnings exclude discontinued operations

Earnings Summary
FYE Dec 31 (RM mn) FY16 FY17 FY18 FY19F FY20F
Revenue 10,436.8 11,066.6 11,303.6 12,400.6 13,321.9
EBITDA 687.2 674.6 815.9 825.7 874.5
EBITDA margin (%) 6.6 6.1 7.2 6.7 6.6
Pretax profit (282.1) 266.6 800.3 745.7 781.9
Net profit (536.5) 164.7 520.8 427.0 630.6
Core Net Profit 406.0 450.3 422.9 462.4 479.7
Adj. Core EPS (sen) 34.8 38.5 36.2 39.6 41.1
EPS growth (%) n.a. 10.9 (6.1) 9.4 3.7
Core PER (x) 15.7 14.1 15.1 13.8 13.3
DPS (sen) 0.0 0.0 7.5 7.0 7.0
Div. Yield (%) 0.0 0.0 1.4 1.3 1.3
Core ROE (%) 8.6 14.8 12.6 12.4 11.6
All discontinued operations are excluded

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return
if dividend discount model valuation is used to avoid double counting.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this
document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Thursday, May 23, 2019, the analyst, Angeline Chin, who prepared this report, has interest in the following securities covered in this report:
(a) nil

Kaladher Govindan – Head of Research

TA SECURITIES HOLDINGS BERHAD (14948-M)

A Participating Organisation of Bursa Malaysia Securities Berhad
Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048
www.ta.com.my

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