UMW’s shares have gained 85.6% y-o-y, but we still like the auto conglomerate, which stands to benefit from the strengthening MYR vs both the USD and JPY. As such, we raise our earnings forecasts by 5%/9%/9% respectively for FY12/FY13/FY14. We expect UMW to report strong December vehicle sales, which have hit a record high since 2007. Following the earnings upgrades, we raise our SOP-derived FV to RM14.43 (from RM13.36), for an implied 12x PE, which is still below its 5-year historical average of 13x. UMW also offers a decent dividend yield of 4.5%.
December sales to hit record. We gather that UMW expects to report strong vehicle sales for December that may breach an estimated 11k units (y-o-y: +108%, m-o-m: +20%). The anticipated new monthly record – the highest since Dec 2007 - was driven by its aggressive promotions in conjunction with its 30-year anniversary celebrations. Total FY12 Toyota vehicle sales is expected to hit 108k units (y-o-y: +22%), trouncing our forecast for 101k units. This will significantly boost UMW’s 4Q earnings, which may also beat consensus expectations. Perodua is also expected to report strong sales of 18.7k units for December, bringing its FY12 total vehicle sales to 189k units, in line with our projection for 190k units.
Vehicle projections. We are forecasting UMW and Perodua vehicle sales will grow by 8% and 9% respectively in 2013. UMW’s vehicle sales growth will be fuelled by the upcoming launches of the third-generation of Vios and the all-new Altis, scheduled sometime in 2H this year.
Strengthening Ringgit buoys earnings. Based on yesterday’s exchange rates, the JPY and USD have weakened by 17% and 4% y-o-y against the Ringgit. This will boost Perodua and UMW’s margins respectively. The favourable currency movement, coupled with the group’s focus on cost, as well as the economies of scale to be achieved from a higher localization rate, we are now raising our earnings by 5%/9%/9% respectively for FY12/ FY13/ FY14.
Maintain BUY at a higher FV. Following the earnings upgrade, we are raising our sum-of-parts based FV to RM14.43, for an implied PE of 12x, which is still below the stock’s 5-year historical average of 13x. UMW also offers a decent dividend yield of 4.5%.
KEY HIGHLIGHTS
December sales to be high. We gather that UMW is expected to report strong vehicle
sales for December – breaching 11k units (y-o-y: +108%, m-o-m: +20%), a new monthly
record high since Dec 2007, driven by its aggressive promotional activities in conjunction
with its 30-year anniversary celebrations. December is a traditionally weaker month due to
the deferment in purchases to the New Year to attain a higher vehicle resale value.
Discounts offered will not be too aggressive to ensure that margins are not too
compromised. More importantly, economies of scale will be achieved through the high
volume of vehicles manufactured. Total expected vehicle sales of 108k units in FY12 (y-o-y: +22%) from Toyota trounce our forecast of 101k units, hence likely to bring another stellar set of earnings in 4Q for UMW, beating consensus expectations. Likewise, Perodua
is also expected to report strong December sales numbers, estimated to hit 18.7k units, bringing its total FY12 vehicle sales to 189k units, which is in line with our expectations of
190k units.
sales for December – breaching 11k units (y-o-y: +108%, m-o-m: +20%), a new monthly
record high since Dec 2007, driven by its aggressive promotional activities in conjunction
with its 30-year anniversary celebrations. December is a traditionally weaker month due to
the deferment in purchases to the New Year to attain a higher vehicle resale value.
Discounts offered will not be too aggressive to ensure that margins are not too
compromised. More importantly, economies of scale will be achieved through the high
volume of vehicles manufactured. Total expected vehicle sales of 108k units in FY12 (y-o-y: +22%) from Toyota trounce our forecast of 101k units, hence likely to bring another stellar set of earnings in 4Q for UMW, beating consensus expectations. Likewise, Perodua
is also expected to report strong December sales numbers, estimated to hit 18.7k units, bringing its total FY12 vehicle sales to 189k units, which is in line with our expectations of
190k units.
Vehicle projections. We forecast UMW and Perodua vehicle sales to grow by 8% and 9% respectively for 2013. UMW’s vehicle growth will be driven by the upcoming launches of the third generation of Vios and the all new Altis scheduled sometime in 2H this year. The new Vios is expected to debut in the Bangkok Motor Show in March. Facelifts and new variants will continue to be introduced by Toyota for its other vehicle line-ups to sustain sales growth momentum. Perodua’s sales will be sustained by higher demand take-up on the back of higher employment activities as more graduates enter the workforce and as a second car (notably its MPV, the Alza).
Strengthening MYR good for earnings. The JPY and the USD continues to weaken against the MYR – down by 17% and 4% y-o-y, boosting the margins of Perodua and UMW respectively. We estimate that every 1 sen movement in the MYR against the USD will impact UMW Toyota’s earnings by RM3.9m in PATAMI and RM9.3n in EBITDA. We maintain our USD/MYR forecast at RM3.05, in line with our economist’s view. Despite maintaining this forex forecast, we are nudging up our EBITDA margin assumptions for UMW Toyota to 16.5% from 16%. UMW Toyota achieved an EBITDA margin of 15% last year and based on its 9M12 numbers, we expect its FY13 EBITDA margin to be higher at 16% despite the average weakening of the MYR against the USD y-o-y by 1.1%.
Strengthening MYR good for earnings. The JPY and the USD continues to weaken against the MYR – down by 17% and 4% y-o-y, boosting the margins of Perodua and UMW respectively. We estimate that every 1 sen movement in the MYR against the USD will impact UMW Toyota’s earnings by RM3.9m in PATAMI and RM9.3n in EBITDA. We maintain our USD/MYR forecast at RM3.05, in line with our economist’s view. Despite maintaining this forex forecast, we are nudging up our EBITDA margin assumptions for UMW Toyota to 16.5% from 16%. UMW Toyota achieved an EBITDA margin of 15% last year and based on its 9M12 numbers, we expect its FY13 EBITDA margin to be higher at 16% despite the average weakening of the MYR against the USD y-o-y by 1.1%.
Perodua to benefit most from dwindling JPY. More importantly, we see Perodua benefiting the most from the sharp depreciation in the JPY given its high sensitivity to the currency as JPY-based import costs account for 20% of its total costs. We estimate that every +1/-1sen change in MYR against the JPY, it would decrease/increase Perodua’s earnings by RM2m. Should the JPY stay at this level, associate income from Perodua would surge by 22-23% from our previous estimates. To be conservative, we only raise our
earnings for Perodua by 11% for FY13 and FY14, representing earnings growth of 15% and 20% respectively.
earnings for Perodua by 11% for FY13 and FY14, representing earnings growth of 15% and 20% respectively.
Nudging up overall earnings. Factoring in the favourable currency movements and higher margin assumptions that will be achieved from its cost control efforts and economies of scale through higher localization efforts, we now expect higher earnings for UMW moving forward. As such, our earnings for FY12/ FY13/ FY14 are upgraded by 5% / 9% / 9% respectively. UMW has consistently met our earnings expectations and we expect it to continue to do so, despite our immediate term forecasts being significantly higher than consensus by 20%.
Maintain BUY at a higher FV. Following the earnings upgrade, we raise our SOP derived FV to RM14.43, giving it an implied PE multiple of 12x, which is still below its 5-year historical average of 13x. UMW also offers a decent dividend yield of 4.5%.
Maintain BUY at a higher FV. Following the earnings upgrade, we raise our SOP derived FV to RM14.43, giving it an implied PE multiple of 12x, which is still below its 5-year historical average of 13x. UMW also offers a decent dividend yield of 4.5%.
Source: OSK
Perodua SUV is so attractive that I can't help owning one! Perodua Malaysia
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