Analysts expect continued strong earnings for UMW

KUALA LUMPUR: UMW Holdings Bhd (UMW) is expected to continue its strong earnings growth, driven by stronger contributions from its automotive division, analysts observed.

In a report, Kenanga Investment Bank Bhd’s research team (Kenanga Research) said UMW derives its earnings mostly from the stream of new models (Vios and Yaris facelifted) launching in December 2020 and supported by Toyota RAV4 CBU and Lexus UX200, Toyota Hilux Rogue with two new CKD models expected, namely the Innova & Fortuner, expected in January 2021, with order-taking in the fourth quarter of 2020 (4Q20), and its 38 per cent-owned Perodua.

As such, it said it increased its estimates on UMW’s FY20 and FY21 core net profit (CNP) by 87 and 24 per cent, respectively, to reflect stronger contribution from automotive division and associate Perodua.

Hong Leong Investment Bank Bhd’s research team (HLIB Research) also expected continued strong earnings in 4QFY20 mainly driven by higher automotive sales and automotive components sales under SST exemption period.

It noted, “Management is upbeat on strong automotive sales in 4QFY20 (due to SST exemption). Entering FY21, UMW will be banking on several attractive new models from Toyota (confirmed Vios facelift, Yaris facelift and an entry level SUV model) and Perodua (confirmed D55L SUV and expected Myvi facelift).

“We are cautiously optimistic on the outlook for the segment due to concurrent new model introductions by competitors in the same period.”

As for its automotive parts business, HLIB Research expected the division to leverage on the recovery of local car production volume, for earnings sustainability.

“Kayaba has completed its 20 per cent capacity expansion in November 2020,” it said.