KUALA LUMPUR: The automotive division of UMW Holdings Bhd (UMWH) is expected to improve as the industry, including showrooms gradually, is allowed to reopen on August 16, 2021, following the lifting of restrictions.
JF Apex Securities Bhd expects the strong orders accumulated during lockdown, sales tax exemption and the introduction of new
vehicle models could elevate the sales of the automotive segment in the second half of 2021.
UMWH targets to achieve 62,000 units of Toyota (including Lexus) and 240,000 units of Perodua.
In the first half (1H) of 2021, UMWH has sold a combined 131,400 units with a market share of 52.7 per cent in domestic, with 34,111 units of Toyota and 97,290 units Perodua.
“We are optimistic that UMWH will achieve the sales target underpinned by extended sales tax
exemption and easing of Full Movement Control Order (FMCO) restriction,” the research firm said.
In keeping up with the times and the era of electrification of cars, UMWH has announced its move to advance the local manufacturing of hybrid electric vehicles (HEV) by investing a further RM270 million locally last month.
Furthermore, the company is planning to build a new smart lubricant plant equipped with cutting-edge technology amid the industry
4.0 revolution to improve productivity and efficiency lead to better cost optimisation.
Further, JF Apex also noted that the easing restriction of economic activities would benefit UMWH’s manufacturing and engineering (M&E) segment.
The sales of Equipment and M&E segments are expected to be spurred by the recovery of economic activities such as construction
sector and warehousing hence driving the demand for its products which are industrial and heavy equipment such as forklifts and excavators.
Touching on earnings, UMWH posted a second-quarter (Q2) FY21 net loss of RM39.6 million after including the RM35 million distribution to sukuk holders and excluding other non-operating profits.
On quarter-on-quarter (QoQ) comparison, the bottom line slumped from a net profit of RM87.9 million in the first quarter (Q1) FY21 due to a decrease of sales in all segments, following the implementation of the FMCO started 1 June 2021, which halted the company’s business activities and the sales gallery operations.
“On year-on-year (YoY) basis, we witnessed the narrowing core net loss for this quarter against Q2 FY20 of -RM79.8 million mainly
due to the low base in last year with the imposition of MCO 1.0.
“JF Apex said UMWH’s result is away lower than expectations as the company’s first-half (1H) 2021 net profit of RM76.2 million misses our in-house and the market expectation, which only accounts for 26 per cent of our and market full-year earnings estimates.
“The disappointing result is mainly due to the impact of FMCO resulted in merely 1,921 units of auto sales in June 2021,” the research firm noted.
M&E segment was dragged down by aerospace sub-segment but cushioned by auto-components and lubricants subsegment.
Nonetheless, the 1H21 sales of auto components surged 36 per cent YoY, mainly supported by increased plant capacity.
Meanwhile, lubricants sales increased by 31 per cent YoY due to improved demand.
JF Apex maintains a Buy call on UMWH with an unchanged target price of RM3.90.
“We favour the stock outlook as the auto division is spurred by sales tax exemption as well as the introduction of new models.
“Secondly, UMWH’s effort to keep up with the times by investing in HEV, cutting-edge technology plant, and enhancing digitalisation effort to cater to the current market demand.
“We also see the anticipating gradual recovery in Equipment and M&E divisions given the roll-out of the global vaccination programme and easing of restriction,” JF Apex noted.
Source: New Straits Times
