Better earnings prospects for UMW Holdings this year?

KUALA LUMPUR: A higher take-up from new launches, potential extension of the sales tax holiday, introduction of new complete-knocked down (CKD) models and strengthening of the ringgit could support UMW Holdings Bhd’s earnings this year.

CGS-CIMB Research said UMW had expected the sales growth momentum to persist into the second quarter and beyond, given the sales tax exemption and order backlog for both UMW Toyota Motor Sdn Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

“The group indicated that underlying demand remains healthy, with UMW Toyota and Perodua having outstanding orders of 22,000 and 70,000, respectively, providing order visibility of some three to four months,” CGS-CIMB analyst Mohd Shanaz Noor Azam said in a report today.

He said resilient growth prospects from UMW Toyota and Perodua as the companies had registered 61 per cent and 29 per cent year-on-year (YoY) sales volume growth in the first quarter of 2021.

This was mainly driven by new launches, such as Perodua Ativa, Toyota Vios and the Yaris facelift.

“UMW Toyota partly attributes the strong order visibility to a favourable take-up rate arising from the Toyota Capital EZ Beli campaign, offering up to a nine-year loan period.

“UMW Toyota also expects minimal disruption to operations following the tightening in standard operating procedures (SOPs) under third edition of Movement Control Order (MCO 3.0), given that the company is running its Bukit Raja Plant (BRP) with a 50 per cent workforce on double shifts; running at about 75 per cent capacity utilisation.”

He said UMW Toyota had expected minimal impact from the ongoing worldwide chip shortages, given that it was not facing any chip shortages for its popular CKD-based models, such as Vios and Yaris.

Additionally, UMW was launching new transformation framework under CREST@2021, innovising mobility, which aims to leverage on evolving technologies and to generate growth across the mobility value chain.

Under CREST@2021, the group aims to grow its revenue, pre-tax profit and net profit to RM20 billion, RM2 billion and RM1 billion respectively by the year ending December 31, 2030 or earlier.

“This is an ambitious plan that may require an inorganic growth driver, but we look forward to tracking its transformation journey,” he said.

CGS-CIMB has reiterated an “add” call with an unchanged target price at RM4.20 per share, citing that the stock was trading at undemanding valuations of 12 times 2021 price earnings ratio.

Key downside risks include delays in new CKD launches, drag from the manufacturing and manufacturing and equipment divisions, and a weakening ringgit against US dollar.

Source: NST