Friday 29 Mar 2024
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KUALA LUMPUR (Nov 4): Analysts are anticipating better quarterly results ahead for UMW Holdings Bhd after the group said it is on track to meet its full-year sales target following improved October sales at both UMW Toyota Motor (UMWT) and its 38%-associate company, Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

Hong Leong Investment Bank (HLIB) Research analyst Daniel Wong said the whole market is expecting the auto sector to recover in the third and fourth quarters of this year, mainly boosted by the sales and service tax (SST) exemption.

“2Q (the second quarter) would have been the worst quarter for any company due to the government’s movement control order (MCO). They (UMW) did not sell many cars in the last quarter (2Q), thus, this quarter (3Q), we can expect good profit for the group,” he told theedgemarkets.com.

However, Wong maintained his "hold" call for UMW with an unchanged target price (TP) of RM2.75 as he believes the group would still face competition pressure from non-national cars in the longer term.

“Any auto firm can perform in terms of earnings in 3Q and 4Q due to the SST exemption. But what will happen in the coming first quarter? Competition from Proton, Honda, Nissan and Mazda will likely result in lower profit for UMWT,” he said.

The government in June granted full sales tax exemption for locally-assembled or completely knocked-down cars, and 50% for imported or completely built-up cars, from June 15 to Dec 31.

“I didn’t expect the group to achieve that much sales in October. It was quite surprising,” an analyst who did not want to be named observed, adding that the strong car sales momentum that was boosted by the SST exemption should last until year end as consumers would want to benefit from the tax exemption.

This view was echoed by another analyst who declined to be named, saying UMW would likely continue to see better numbers from both UMWT and Perodua before the year is out.

However, while he believes the group would rebound to profit in 3Q, he thinks its year-on-year (y-o-y) growth will remain subdued as he expects the group's earnings to still be dragged by other segments, such as equipment, as well as manufacturing and engineering, which have been affected by the Covid-19 pandemic.

Earlier today, UMW said in a statement that UMWT sold 6,468 vehicles in October, while Perodua achieved a new sales record of 26,852 units.

As such, it said UMWT is on track to achieve its revised sales target of 53,000 units for the year, with 43,807 sold in the first 10 months. Perodua, on the other hand, already achieved 81.8% of its sales target of 210,000 units for the year, as it sold 171,864 units in the January to October period.

In a report today, Maybank Investment Bank Research analyst Liaw Thong Jung raised its 2020 total industry volume (TIV) forecasts by 6%-9% to 508,000-515,000 units on expectations of a stronger vehicle sales outlook for 4Q.

“We expect October-to-December vehicle sales to average 55,000 to 58,000 units per month, underpinned by various launches and the ongoing zero SST incentive,” he said.

He also said the industry will be monitoring three key features in the upcoming Budget 2021, namely the SST policy, the electric vehicle (EV) framework and merger and acquisition (M&Q) incentives. Out of the three, an extension of the zero SST policy would gain the most traction in the market.

At this juncture, Liaw remains positive on the automotive industry, and said UMW, MBM Resources Bhd, Bermaz Auto Bhd and Sime Darby Bhd are among his key buys.

On UMW and MBM Resources in particular, he said the anticipated roll-out of Perodua's B-segment sport utility vehicle (SUV) next year — the D55L — will be a catalyst for the two.

UMW posted a net loss of RM78.44 million for the second quarter ended June 30, 2020 (2QFY20), its first loss since 4QFY17, due to the MCO, which severely impacted sales. Quarterly revenue dropped 48.52% to RM1.53 billion from RM2.97 billion for 2QFY19.

Consequently, the group posted a net loss of RM34.12 million for the first six months of FY20 (6MFY20), compared with a net profit of RM143.69 million a year ago, as revenue sank by over RM2 billion to RM3.65 billion from RM5.75 billion.

At the time of writing today, UMW shares were up nine sen or 3.98% at RM2.35, valuing the company at RM2.71 billion.

Edited ByTan Choe Choe
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