UMW to see boost in car sales, improved profitability

KOTA KINABALU: UMW Holdings Bhd (UMW) is expected to see a boost in car sales during this tax holiday period while the group’s strategic exit from the oil and gas (O&G) industry is expected to improve overall profitability, analysts say.

In an outlook on UMW, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said that it expected a “boost in car sales during this tax holiday transition period”.

As for the expected introduction of the sales and service tax (SST), Kenanga Research noted that this may increase car prices depending on the new mechanism.

According to Kenanga Research, the group had launched in the first quarter of 2018 (1Q18) two new models namely the all-new Toyota CH-R, and all-new Toyota Harrier.

The research arm noted that in the second half of 2018 (2H18), the group will launch Lexus models (LS, RX350L and Lexus NX300) and all-new Perodua SUV D38L.

“On the other hand, the strategic exit from the O&G industry is expected to improve the group’s profitability with a more solid balance sheet.”

Nonetheless, Kenanga Research maintained its ‘neutral’ stance on UMW in view of the limited growth in car sales pending the completion of the group’s new Bukit Raja plant which is expected to be operational in early 2019 and gestation period for UMW Aerospace.

In a recent development, UMW announced that further to the letter of intent earlier on between whollyowned subsidiary UMW Corporation Sdn Bhd (UMWC) and Komatsu Ltd (Komatsu), UMWC had on July 2, 2018 entered into a transaction agreement with Komatsu

The group also revealed that the agreement serves as a framework for the contemplated mutual cooperation between the parties in the heavy equipment business and to outline the terms and conditions governing the formation of a joint venture company (JVC).

“We are positive on this news as the formation of the JVC will further strengthen the long-standing relationship (53 years) with Komatsu,” Kenanga Research said.

“Note that, heavy equipment business contributed 40 per cent of revenue to the UMW group equipment segment (equipment segment is at 14 per cent of the group total revenue).”