This article first appeared in The Edge Financial Daily, on May 26, 2016.

KUALA LUMPUR: UMW Holdings Bhd’s 51%-owned UMW Toyota Motor Sdn Bhd is putting in about RM2 billion to build a passenger vehicle manufacturing plant that will produce 50,000 units of vehicles per year once it comes into operation in early 2019.

Describing the plant as one that emphasises on efficiency, UMW Toyota Motor deputy chairman Akio Takeyama said the plant will sit on a 670,000-sq m land in Bukit Raja Industrial Estate. Construction works will begin in the second half of this year.

UMW Toyota Motor’s current assembly plant, which is located at about 10km from the upcoming one, can produce 75,000 units of vehicles every year. Takeyama said that the company will streamline its production, where parts of the current passenger car line will be shifted to the new plant, and will become a predominant producer of commercial vehicles.

Its combined production volume from both plants will then be between 90,000 and 100,000 annually, he said. The new plant, too, will produce energy-efficient vehicles, but he declined to name the models.

Toyota holds the remaining 49% stake in the company.

“This move is not simply to increase capacity, but to increase cost competitiveness. We are shifting away from being a volume-oriented company to one that is competitive-oriented,” said Takeyama.

Toyota Boshoku UMW Sdn Bhd, a joint venture between UMW Toyota Motor and Toyota Boshoku Corp, which makes seats and other interior components for Toyota vehicles, will also move its production activities to the new plant.

He also said that the new passenger vehicle manufacturing plant will be one of Toyota Motor Corp’s most advanced; it will produce less emission, employ a flexible production line to ensure efficiency, and be powered by the Internet of things.

For now, he said, the manufacturing plant is looking to build cars solely for the Malaysian market, seeing that there will be demand growth in the foreseeable future.

UMW Toyota Motor president Datuk Ismet Suki meanwhile said the RM2 billion investment funding will be solely derived from the company internally over the course of three years of construction. Shareholders will not be pumping in money to build the plant, nor will the company resort to borrowing.

According to UMW Holdings’ annual report for the fiscal year ended Dec 31, 2015 (FY15), UMW Toyota Motor had current assets worth RM3.22 billion, while non-current assets were valued at RM1.12 billion. Its total equity as at Dec 31, 2015 was RM2.73 billion.

Automotive division is the key earnings contributor to UMW Holdings. For the first financial quarter ended March 31, 2016, automotive division generated a revenue of RM1.55 billion, down 22.5% from RM2 billion a year ago. Still, automotive is the biggest contributor accounting for nearly 71% of the group’s total revenue.

Pre-tax profit from the division also shrank substantially to RM82.5 million from RM233.5 million in the previous corresponding quarter.

UMW Holdings’ share price has been on downhill. Its share price slipped to RM5.15 yesterday — the lowest closing since August 2010, no thanks to the double whammy it is facing: soft auto sales and the downturn in the oil-and-gas industry.

The group’s quarterly net profit tumbled nearly 90% to RM16.58 million, partly dragged down by the pre-tax loss of RM68.4 million incurred in its oil and gas division.