UMW Holdings Bhd
(Nov 29, RM5.23)
Upgrade to hold call with a higher target price (TP) of RM5.03 per share: Despite the higher revenue of RM8.2 billion (+7.2% year-on-year [y-o-y]), UMW Holdings Bhd registered a net loss of RM117.5 million (+1.1% y-o-y) due to weaker operating margins, negatively impacted by foreign exchange and the competitive operating environment. Cumulative nine months of financial year 2017 (9MFY17) losses were larger than expected. The higher top line came from the automotive, manufacturing and engineering (M&E), and equipment segments.

The automotive segment climbed 9.5% y-o-y aided by better sales in car models such as Innova, Fortuner and Sienta with a boost in sales promotion activities. However, margins remained weak, averaging 4.5% versus 5.8% in 9MFY16. The equipment segment also grew marginally by 1.1% in 9MFY17 on the back of higher demand for the spare parts and services. As for the M&E segment, the business was up 6.4% y-o-y due to strong demand for shock absorbers and more promotional campaigns.

Excluding the automotive segment, the equipment and M&E segments grew by 7.7% and 7.8% respectively. The automotive segment reported a 6.5% y-o-y drop in revenue in the third quarter of FY17 due to lesser demand for Toyota vehicles in anticipation of new model launches. On a brighter note, the equipment segment’s improved performance was attributed to higher heavy equipment sales in Malaysia coming from higher construction activities and increased exports for parts in Myanmar. The M&E segment was also up thanks to increased contribution from the automotive components manufacturing business.

We now assume UMW Holdings to record a full-year loss for 2017E (estimates) and raise our FY18-FY19E earnings slightly by 2.5% to 0.6% post some housekeeping adjustments. Our sum-of-parts based TP price is lifted to RM5.03 (from RM4.82 previously) post some adjustments. With limited stock price downside, we raise UMW Holdings to a “hold”. — Affin Hwang Investment Bank Research, Nov 29