Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on September 26, 2017

UMW Holdings Bhd
(Sept 25, RM5.48)
Maintain hold with an unchanged target price of RM5.20:
We attended UMW Holdings Bhd’s second quarter financial year 2017 (2QFY17) results briefing and came back feeling reassured about the group’s rationalisation plans and believe the group is on track for earnings recovery. 

UMW also shed some light on its future business plans. To recap, the group’s first half of FY17 (1HFY17) results were dragged down by operating losses in the oil and gas (O&G) segment as well as aerospace business. The group expects gradual earnings recovery for the businesses as the operating losses are expected to be minimised in the near future.

According to UMW, the most awaited new model, Toyota CH-R, will be officially launched in 1HFY18. Toyota CH-R is a completely built up (CBU) unit from Japan and is expected to open for order from next month onwards. However, the selling price is still yet to be determined. This compact SUV model is compatible with its peers’ Honda HR-V and Mazda CX-5.

As a plan to capture a bigger market share, the group aims to introduce more numbers of various completely knocked down (CKD) models. Currently, the group has six CKD models and six CBU models. 

However, the introduction of more new passenger car models will only take place when its new manufacturing plant in Bukit Raja, Shah Alam is completed in 2019.

UMW has recently partnered with Komatsu Ltd (Japan) to expand its heavy equipment segment by selling renowned Komatsu products in Malaysia, Singapore, Myanmar and Papua New Guinea. We view this joint venture as a positive catalyst for the division to further drive its earnings.

UMW has ceased its operations in Oman since April, and is in the midst of negotiations to sell other business units. The group has been burdened by retrenchment costs as well as inventory losses amounting to RM55 million during 1HFY17 in relation to ceasing operations in Oman. Overall, the group envisages disposing of all of its non-listed O&G assets by 2018.

The aerospace business incurred losses of RM25 million in 1HFY17 due to operating losses of the new fan case plant in Serendah. The group expects to minimise its losses in 2HFY17 as a single-digit unit first fan case will be delivered to Rolls-Royce Ltd next month. However, any substantial contribution is only realised upon reaching its full operation capacity (maximum capacity: 250 units per annum), expected from 2019 onwards.

We revise upward our earnings forecasts for FY18 and FY19 by 8.5% and 4.8% respectively as we believe its business will be more stable after the disposal of its O&G segment. — JF Apex Research, Sept 25
 

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