This article first appeared in The Edge Financial Daily on May 24, 2019
KUALA LUMPUR: As competition in the automotive sector rises, UMW Holdings Bhd is maintaining its sales target for 2019 notwithstanding a recent 25 basis points reduction in the key benchmark rate, said president and chief executive officer (CEO) Badrul Feisal Abdul Rahim.
At a press conference after the group’s annual general meeting yesterday, Badrul Feisal said the group is sticking to its sales target of 75,000 units for Toyota and 231,000 units for Perodua.
“The competition as far as [the] automotive [sector] is concerned is becoming greater, so that is the reason why I believe we don’t have to revise. Yet, it is a blessing, [the] OPR (overnight policy rate) has come down. But still the competition is not easing,” he said, referring to Bank Negara Malaysia’s 0.25% cut to the OPR to 3% on May 7 which will make borrowing slightly cheaper.
UMW is Perodua’s single largest shareholder, and also the exclusive distributor of Toyota vehicles.
In financial year 2018 (FY18), the group sold 67,500 units of Toyota vehicles, and 227,243 units of Perodua.
Badrul Feisal said UMW has set aside a capital expenditure (capex) of slightly over RM600 million for FY19. Some RM174 million of the capex would be allocated to the automotive segment which accounted for almost 80% of total group revenue in FY18.
“This (the capex) is for the modernisation of the Shah Alam plant, as the Bukit Raja plant is already done,” he said.
Badrul Feisal said that as UMW already introduced new Vios and Yaris variants in January and April, it does not intend to bring in any further complete knocked-down models this year, except for a facelift Hilux, Avanza and Innova, in the fourth quarter.
“2019 is going to be a good year, although the challenges are still there,” he said, pointing to the US-China trade war, and its impact on global growth and consumer spending. “But we hope with the OPR cut, it could offset the decline in spending.”
Apart from the automotive segment, Badrul Feisal said the group is allocating some RM262 million for its equipment division, RM118 million for manufacturing and engineering, and RM52 million for “others”.
UMW’s supply of aircraft engine fan cases for Rolls Royce is not expected to be affected by the US-China trade impasse. “I don’t foresee any impact from the trade war because our supply is for UK [customer]. In fact, they are being sent to Singapore, so today we have not seen any impact from that,” he said. He revealed the number of fan cases delivered last year was in “double-digit figure”, and management has projected a three-digit figure for 2019.
“We are bound by the confidential agreement with Rolls Royce to not quote the number, but we are expecting three digits this year, driven by orders, and we have been ramping up our production since we started in end-2017,” he said.
Badrul Feisal said the group is exploring other industries where it can apply its high precision engineering skills. “We are looking into that (providing precision engineering beyond aerospace customers), but it is still premature to talk about it.”
On UMW’s presence in China, Badrul Feisal noted that the transactions there are relatively insignificant compared with its overall group revenue. In China, the group’s lubricants business turned profitable about two years ago and rakes in about RM7 million to RM8 million annually.
“The contribution from China has not been really big to our broad revenue. Yes, we are concerned, but it won’t have a significant impact even if it moves negatively against us because our main revenue generator has always been Malaysia itself,” he added.
UMW’s share price closed 17 sen or 3.12% lower to RM5.28 yesterday, with a market capitalisation of RM6.17 billion.