UMW HOLDINGS BERHAD - 2023 |
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| Report ID | 60538900469477 | Popularity | 538 views 107 downloads | |||||
| Report Date | Jul 2023 | Product | ||||||
| Company / Issuer | UMW Holdings Bhd | Sector | Trading/Services - Conglomerates | |||||
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| Rationale |
Rating action MARC Ratings has affirmed its AA+IS rating on UMW Holdings Berhad’s (UMW) RM2.0 billion Islamic Medium-Term Notes (IMTN) Programme (Sukuk Musharakah) and its AA-IS rating on the RM2.0 billion Perpetual Sukuk Programme. The two-notch rating differential between the two programmes is in line with MARC Ratings’ methodology on notching principles of subordinated and hybrid instruments. The outlook for all ratings is stable. Rationale The ratings affirmation considers UMW’s lead market position in the domestic automotive industry and strong financial performance, characterised by healthy operating cash flow, low leverage and strong liquidity. Notwithstanding a one-notch uplift incorporated in the ratings based on implicit support from parent Permodalan Nasional Berhad (PNB), a government-linked investment company (GLIC), MARC Ratings opines that as UMW’s credit profile has steadily improved, its standalone rating could be revised upwards if it sustains its key credit metrics. UMW holds the majority of the domestic automotive market share, collectively through the marques under its stable, namely Toyota, Lexus, and Perodua. For 1Q2023, it recorded total sales volume of 103,783 units or 53.9% of TIV (2022: 383,054 units or 53.2%). While the catalyst for the strong sales performance was the sales tax exemption for vehicle bookings made before June 30, 2022, and registered by March 31, 2023, UMW’s competitive strength lies mainly in offering well-known marques at different price ranges and segments that can cater to customer needs. This is also due to its longstanding collaboration with Toyota group, which holds a collective 49% interest in UMW Toyota Motor Sdn Bhd (UMW Toyota Motor) and with Daihatsu group which holds a collective 25% in Perusahaan Otomobil Kedua Sdn Bhd (Perodua). UMW holds 51% interest in UMW Toyota Motor and a 38% stake in Perodua. Its key marques are Perodua for the mass-market segment, and Toyota and its sister brand Lexus for the mid-market and upmarket segments. Among models launched in 2022 were the Toyota Corolla Cross Hybrid and the all-new Perodua Alza, which supported its sales volume in that year. For 2023, backlog orders of about 250,000 units would sustain its sales performance in the automotive segment, providing some offset to any fall in demand following the end of the sales tax exemption period. Overall group profit margin is expected to remain in the single digit, reflecting the competitive nature of the automotive industry. Performance of its industrial and heavy equipment sub-segments have improved in 1Q2023, supported by reopening of the economy that led to increased business activities and resumption of delayed infrastructure and industrial projects that were hampered by the pandemic. The industrial sub-segment holds a leading market share in the forklift market in Malaysia and Singapore; it also undertakes leasing of Toyota forklifts in Vietnam, China, and Brunei. Performance of the manufacturing and engineering segment, which comprises the auto components and lubricant sub-segments also improved, in line with the strong sales registered by the automotive industry. The aerospace sub-segment also rebounded upon higher delivery of engine fan cases as aircraft deliveries picked up. In April 2023, UMW secured a second contract worth RM1.0 billion from Rolls-Royce to manufacture rear cases for Trent 1000 and Trent 7000 aircraft engines for The Boeing Company and Airbus SE. The 15-year contract will utilise the group’s newly set-up chemical milling facility located adjacent to the existing facility in the UMW High Value Manufacturing Park in Serendah, Selangor. Group borrowings reduced to RM1.5 billion, translating to a low debt-to-equity (DE) ratio of 0.31x (adjusted to include 50% of Perpetual Sukuk) as at end-March 2023 with RM1.25 billion and RM1.1 billion outstanding under the Sukuk Musharakah and the Perpetual Sukuk programmes. On a consolidated basis, the group is in a net cash position. Its liquidity position remains healthy with a cash balance of RM2.7 billion, providing headroom for expansion through acquisitions. At the holding company level, UMW’s debt servicing and repayment ability relies mainly on dividends from its key operating entities. In 2022, it recorded revenue of RM213 million; borrowings consist of the outstanding sukuk, with the first sukuk repayment of RM400 million due in November 2025. Dividend of RM102.8 million paid in 2022 (2021: RM46.7 million) reflects a moderate dividend payout policy that considers capital expenditure requirement at subsidiary levels. Cash and bank balances stood healthy at RM296.3 million as at end-2022. Rating outlook The stable outlook reflects our expectations that UMW’s strong operational track record and market position in the automotive segment will continue to support group performance and the group will broadly maintain its credit profile. Rating trajectory Upside scenario Any upgrade in the standalone rating and/or outlook would consider sustained improvement in key credit metrics, among which are cash flow from operations (CFO) debt coverage of above 0.4x, and DE ratio of below 0.5x. Downside scenario The rating could come under pressure if group performance were to deteriorate substantially and/or if there are changes in shareholding structure and/or substantial debt-funded acquisitions without commensurate earnings accretion to meet its increased borrowing obligations. Key strengths
Key risks
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