Affin Hwang upgrades UMW Holdings’ target price to RM6.30

KUALA LUMPUR: UMW Holdings Bhd has been upgraded to a “buy”, with a higher target price of RM6.30 by Affin Hwang Capital.

This is fuelled by the expected Toyota model launches, higher contribution from the equipment segment and lower losses from the unlisted oil and gas segment.

“We have raised our financial years 2019 and 2020 core earnings per share forecasts by 13 to 29 per cent to 46 to 50 sen, respectively, due to the exciting model launches that will lift car sales and modest growth from UMW’s other two core segments,” Affin Hwang wrote in its report.

The research firm said UMW’s share price had fallen 26 per cent quarter-on-quarter on possible concerns over its proposed takeover of MBM Resources Bhd falling through and weaker prospects for auto sales after the reimplementation of the Sales and Service Tax.

Nonetheless, it believes there is upside potential as the stock has been trading at 35.5 per cent discount to the current sector forward price earnings ratio of 15.4 times.

“Downside risks include higher-than-expected losses from oil and gas assets and weaker-thanexpected vehicle sales.”

Affin Hwang said UMW, through UMW Toyota Motor Sdn Bhd and Perodua, will launch a number of models between the fourth quarter of this year and the first-half of next year. They include new Vios, Camry and possibly the Yaris as well as the new Perodua sport utility vehicle.

“Passenger cars have been Toyota’s key large-volume segment, commanding 44 per cent of UMW Toyota’s car sales last year,” its said.

The firm said UMW’s alliance with Komatsu would enable better access to a wider range of Komatsu products and penetrate deeper into the construction and mining sectors within existing markets.

“Overall, we expect the equipment earnings to grow at a compound annual growth rate of 7.5 per cent for FY17-20E, supported by the resilient leasing business from the industrial equipment sub-segment in the warehouse and logistics sector.”