KUALA LUMPUR: CIMB Equities Research has downgraded UMW Holdings to a Hold with a lower target price of RM6.10, still based on 14 times CY20F P/E, in line with its five-year historical mean.
It said on Tuesday that UMW’s strong earnings prospect is already reflected in its share price, which had risen 42% since October, its lowest in 2018.
“Following our earnings revision, we downgrade the stock to Hold. Potential excise duties reduction, narrowing losses in aerospace and stronger ringgit are potential upside risks to our call; weakening ringgit and delay in new model launches are key downside risks,” it said.
CIMB Research hosted a meeting between UMW and 20 analysts and fund managers last Friday.
During the meeting, the group highlighted that its new vehicle sales in 4Q18 was partially impacted by the runout of Vios and Camry models, delay in getting approval for the new models’ pricing from the authorities, and higher sales captured during tax holiday period in June-August 2018.
Toyota and Lexus sales fell 39% on-quarter in 4Q18 while Perodua posted stronger sales recovery (+15.5% on-quarter), partly driven by improving Myvi supply.
“In addition, we are encouraged to learn that UMW’s latest production facility in Bukit Raja has started delivery of the new Toyota Vios in early January. The new plant has a total production capacity of 50,000 units per annum on a single-shift operation.
“We believe the Bukit Raja plant will allow UMW to produce more exciting new completely-knocked-down (CKD) models at competitive prices relative to their peers.
“Meanwhile, we expect the group to reduce Shah Alam plant’s production capacity to a single shift to 35,000 units per annum,” it said.
CIMB Research said UMW expects to deliver 75,000 unit sales volume in 2019F (+12.7% on-year), driven by the launch of new models, such as the new Vios, Hilux, C-HR and Rush, and the introduction of a new B-segment model, Yaris.
“Meanwhile, we expect another strong year for Perodua in 2019F, driven by the new Aruz SUV and Myvi. Aruz received 5,700 bookings in the first three weeks of 2019. Overall, Perodua targets 231,000 unit sales in 2019F (+2% yoy),” it said.
However, the research said in spite of its attractive growth prospects in automotive, UMW will be impacted by depreciation expense from its Bukit Raja plant and higher coupon payment related to its RM1.1bil perpetual sukuk issued in April 2018.
“The group will incur RM70mil annual coupon payment for the sukuk. Hence, we cut our FY19-20F EPS by 4%-5%,” it said.
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