UMW’s aerospace to contribute to 2020 earnings outlook
KUALA LUMPUR: UMW Holdings Bhd’s (UMW) aerospace sub-segment is expected to contribute positively to UMW’s 2020 earnings as it ramps up production capacity, analysts observed.
According to the research team at Affin Hwang Investment Bank Bhd (AffinHwang Capital), prospects for the Manufacturing & Engineering (M&E) segment looks promising with its first half of 2019 (1H19) porift before tax (PBT) turning to black to RM15.6 million from a loss before profit of RM3.4 million in 1H18.
This was mainly due to its aerospace sub-segment which achieved positive earnings before interest, tax, depreciation and amortisation (EBITDA) since the second quarter of 2019 (2Q19) on higher production volume of Rolls-Royce Trent 1000 engine fan cases (for Airbus A330neo).
Since inception, it pointed out that UMW Aerospace (UMWA) has delivered 1 unit in 2017, more than 50 units in 2018 and targets to deliver more than 100 units in 2019.
“In the long run, we expect UMWA to contribute positively to the bottom line in 2020 as it ramps up production capacity to 70 to 90 per cent utilisation rates (or 175 fans and 225 cases) in 2020 and 2021E.
“UMWA’s target to begin production of Trent 7000 fan cases (for Boeing 787 Dreamliner) by mid-2020, in our view, could see the sub-segment turn profitable faster than expected. UMWA has an annual production capacity of 250 units,” AffinHwang Capital said.
Aside from that, it noted that there are reports that UMWA is also in active negotiations with numerous parties for the manufacturing of aerospace components and other highvalue manufacturing for the healthcare and energy sectors.
As for its other segments, the research team believed that the positive vibe on UMW’s automotive segment might not hold much longer, especially for the sales of its Toyota/Lexus models.
It pointed out that both models come with a heavy price tag while rivals are revving up to challenge Toyota.
National carmakers are also gaining traction with Proton’s revival and Perodua’s popularity which saw their first eight months of 2019 (8M19) market share growing to 56 per cent, at the expense of the Japanese Big 3 carmakers’ (Toyota, Honda and Nissan) market share of 28.4 per cent.
Nevertheless, UMW’s 38 per cent-owned Perodua has maintained its strong sales momentum: 8M19 sales volume grew by two per cent year-onyear (y-o-y) to 161,800 units, sustained by popular demand across all its models.
“The strong performance saw the Malaysian market leader securing a 40.6 per cent market share in 8M19, up 3.1 percentage points (ppt) from the year before.
“Hence, we think the positive response for Perodua cars should allow it to hit its revised sales target of 235,000 units (from its initial target of 231,000 units) and target market share of 40 per cent by year-end 2019. Perodua’s solid track record and optimism for growth in 2020 has reassured us that its growth prospects remain intact,” AffinHwang Capital said.
As for its equipment segments, the research team said that it’s “business as usual” for its equipment segments.
“We expect the equipment earnings contribution to remain relatively flat over 2019 to 2021E, supported by the resilient leasing business from the industrial equipment sub-segment in the warehouse and logistics sector.