KUALA LUMPUR (Jan 11): CGS-CIMB has maintained its “add” recommendation for UMW Holdings Bhd at RM3.32, with a higher target price of RM4 (from RM3.30), as it expects the company to achieve higher sales volume on the back of new launches and an extension of the sales tax holiday.
Driven by higher sales volume delivery from Toyota and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), CGS-CIMB also raised its earnings per share (EPS) forecasts by 11% to 20% for the financial year ended Dec 31, 2020 (FY20) to FY22, according to its research note to clients today.
UMW currently owns a 38% stake in Perodua, the second national car maker.
“We expect UMWT (UMW Toyota Motor) sales to grow by 16% year-on-year (y-o-y) to 69,000 in 2021, driven by new Vios, Yaris, Fortuner, Innova facelifts and a new C-segment sport utility vehicle (SUV) model. We think UMWT may introduce the Toyota Corolla Cross, which is a new entry for UMWT into the compact SUV segment currently dominated by Honda HR-V.
"Meanwhile, we expect Perodua to deliver 240,000 [units in] sales volume in FY21, mainly driven by the upcoming new A-segment SUV, potentially in 2Q21 (the second quarter of 2021)," it said in a note today.
Overall, CGS-CIMB raised its FY20 to FY22 sales volume projections for UMWT and Perodua by 3% to 7%.
In addition, the research house also expects UMW to benefit from favourable foreign exchange movement as it estimates a 1% appreciation in the ringgit against the US dollar to raise the group’s FY21 to FY22 EPS by 2.2% to 2.6%.
In 2020, UMWT sold 59,320 units of cars, exceeding its 53,000 sales target by 11.9%, while Perodua also beat its sales target of 210,000 units of cars after delivering 220,154 units.
Besides UMW’s management being upbeat about its growth prospects, the research house also quoted the company's management as saying it had earmarked approximately RM630 million in capital expenditure in FY21, mainly for its auto division to prepare for new upcoming launches.
UMW president and group chief executive officer (CEO) Datuk Ahmad Fuaad Mohd Kenali and group chief financial officer Farnida Ngah attended the 13th CGS-CIMB Malaysia corporate day event last Friday.
“We see a higher take-up [rate] from new launches, introduction of a new completely knocked-down (CKD) model and strengthening of the ringgit versus US$ (the US dollar) as potential rerating catalysts, while delays in new launches, a drag from the manufacturing and engineering division and a weakening ringgit versus US$ are key downside risks to our call,” said the research house.
At 10.15am today, UMW's share price had fallen four sen or 1.2% to RM3.28, after 97,500 shares exchanged hands, valuing it at a market capitalisation of RM3.88 billion.