AmInvestment Bank Bhd is maintaining its hold call on UMW Holdings (UMWH) with a lower SOP-derived RM2.40 fair value from its previous RM2.70.
The revenue of UMWH’s second quarter ended June 30, 2020 (2Q20) clocked in at RM1.52 bil, a drop of 48% year-on-year (y-o-y) compared to 2Q19 RM2.97 bil.
This brings the group’s total revenue for the first half of the year (1H20) at RM3.6 bil, a 36% y-o-y decrease from the previous year’s RM5.74 bil.
AmInvestment Bank Bhd analyst Jeremie Yap believes that UMWH’s only saving grace for the quarter was the manufacturing and engineering (M&E) segment.
“The division registered a lower 1H20 revenue of RM431.9 mil (10% decrease y-o-y compared to RM481.6 mil in 1H19), but had a higher net profit of RM14.3 mil (306% increase y-o-y from RM3.5 mil in 1H19),” he said.
The increase was highly attributed to higher production of fan cases in the aerospace segment and the group’s measures to improve margins through cost containment measures.
According to AmInvestment, the poorer performance that reflected in the group’s 1H20 financial results was attributed to the lower revenue contribution of the automotive segment and lower contribution from the equipment segment.
This was caused by the movement control order (MCO), which involved closures of dealerships, showrooms and manufacturing plants nationwide.
“To recap, Toyota sold 18,200 units in 1H20 compared to 31,300 units in 1H19 (-42% y-o-y) with a market share of 10.6%,” Yap added.
UMWH also confirmed that two new CKD launches in 2020 will be pushed back to 2021, hinting that one of the new launches will be open for bookings in December 2020.
For the group’s automotive segment, a lower 1H20 revenue of RM1.6 bil (-27% y-o-y) was registered, due to the decreased number of vehicles sold in the quarter.
The segment’s 1H20 net profit also took a massive dive to RM12 mil (-96% y-o-y).
“We noted a drop in the 1H20 associate earnings of RM2.2 mil (-98% y-o-y) and we suspect that this was due to the weaker performance from Perodua,” Yap said, believing that the lower Perodua sales volume was also a result of the MCO.
In 1H20, Perodua sold a total of 74,200 units, which was a 39% decrease from the previous year’s 121,800 units.
The group further guided that production of the Trent 7000 is scheduled to commence in 4Q20, with its first bulk of deliveries to be executed in October 2020.
“We cut our UMWH’s FY20-FY21F core net profit forecast by 42% (RM104.8 mil) and 17% (RM220.8 mil) respectively, to account for lower revenue contribution for the groups heavy equipment division and lower Toyota sales volume assumptions due to the delay of new model launches,” Yap said.
UMWH’s share price stood at RM2.58 (-1.15%) as of 1.52pm on August 28, 2020 with a market capitalisation of RM3.01 bil.
