• Accept Offer (TP: 5.00). UMW’s 9MFY23 PATAMI of RM611mn (+97.7% YoY) exceeded both our and consensus expectations, accounting for 158.9% and 145% respectively. In 9MFY23, both revenue and net profit increased by +21.5% and +97.7% YoY respectively, driven by the completion of the sale of industrial land to Longi (RM218.1mn). In 3QFY23, UMW’s revenue increased by 7.8%, propelled by higher contributions from the Automotive and Manufacturing & Engineering (M&E) segments. We expect UMW to maintain positive earnings through i) strong vehicle demand mainly from Toyota and Perodua, and ii) improved supply chain, which will increase the volume of vehicle production. We revised our call to HOLD with a higher TP of RM5.00 (RM4.57 previously) to align with the current offer price from Sime Darby. We are overall positive with the offer price and advise shareholders to accept the offer, given that it is higher than our existing TP.

• Key Highlight. In 3QFY23, revenue increased by (+7.8% QoQ, +19.8% YoY), driven by i) a higher number of sales from the automotive division (+17.7% QoQ, +15.1% YoY), mainly from Toyota and Perodua, and ii) robust demand for M&E with a substantial increase from the Aerospace sub-segment, which rose by (+21.4% QoQ, +39.9% YoY) due to increased deliveries of Rolls-Royce fan cases. However, revenue for the Equipment segment was slightly lower (-0.9% QoQ) due to a decrease in equipment deliveries.

• Earnings revision. No change to our forecast.

• Outlook. We expect UMW to maintain positive earnings through i) strong vehicle demand, mainly from Toyota and Perodua, aided by a robust backlog of orders (30k Toyota and 155k Perodua), and ii) an improved supply chain that will increase the volume of vehicle production, leading to expedited deliveries. Regarding the takeover, Sime Darby recently convened an Extraordinary General Meeting (EGM) to seek approval for the acquisition of a 61.2% stake in UMW. The transaction received overwhelming support, with 99.7% of votes in favour. It is noteworthy that PNB and EPF abstained from voting. Sime Darby will launch a Mandatory General Offer (MGO) to acquire the remaining shares in UMW by mid-December to early January 2024.

Source: BIMB Securities Research - 28 Nov 2023