KUCHING: UMW Holdings Bhd’s (UMW) earnings in the near future is expected to recover supported by higher contribution from its automotive and equipment divisions.
Follwing a recent roadshow, the research arm of Maybank Investment Bank Bhd (Maybank Research) yesterday said the conglomerate’s core operations is set to perform better due to higher orders and revenue generated from its automotive and equipment segments.
The research firm believed that with Perusahaan Otomobil Kedua Sdn Bhd (Perodua), UMW’s 38 per cent associate new state of the art manufacturing plant going into full-scale production by end of 2014, Perodua will be able to double its production capacity of cars to 400,000 units per year from 200,000 units at present.
Thus, Maybank Research pointed out that with higher production of cars, it will enable Perodua to become a regional production hub for Daihatsu vehicles.
Maybank Research analyst Ivan Yap in a report said, “We expect overall utilisation for Perodua’s two plants to pick up quickly due to strong demand for Daihatsu vehicles in Indonesia and potential contract assembly works from Toyota Malaysia.
“Daihatsu’s biggest market in Asean is Indonesia where it commands 15 per cent market share of Indonesia’s total industry volume (TIV) of 1.2 million units in 2013.
“Daihatsu’s plant in Indonesia can produce only up to 100,000 units per year and we believe that Perodua’s new plant will be positioned to support demand from the Indonesian market, alongside other Asean markets targeted by Daihatsu.
“We also do not discount the possibility of contract assembly works from Toyota Malaysia given bottleneck concerns over UMW’s plant, which is currently utilised up to 95 per cent. Toyota had awarded contract assembly to Perodua for the Avanza back in 2004,” he recalled.
Apart from that, Yap noted that UMW is making inroads into the Indonesian automotive sector through a 49:51 per cent joint venture with Bluebird Group (Bluebird). Yap pointed out that the partnership will enable UMW to provide lubricants, automotive components and service centre operations for Bluebird’s fleet of about 30,000 taxis.
Additionally, Yap foresees better earnings from higher sales volume for Toyota and Lexus cars domestically. He also projected higher vehicles sales for Perodua’s latest energy efficient vehicle (EEV), Perodua Axia, given the imminent launch of the new A-segment car in the third quarter of 2014 (3Q14).
Apart from that, Yap said earnings from the company’s equipment division is poised to recover in 3Q14 due to higher orders received and better income generated from its jade mining activities.
He observed that UMW has received an order worth US$60 million for heavy equipment and its jade mining activities in Myanmar has resume its operations after a temporary halt in the past.
On another note, Yap said UMW is actively looking for value-enhancing acquisitions and new investments to further expand its existing business.
He said the conglomerate is evaluating a few potential investment proposals and is expected to make the necessary announcements in due course.
As such, Maybank Research has upgraded the valuation of the company due to better outlook for UMW’s earnings in the future and its solid financial position which has turned net cash.