UMW HOLDINGS BERHAD - 2022 |
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| Report ID | 6053890046872 | Popularity | 560 views 102 downloads | |||||
| Report Date | Aug 2022 | Product | ||||||
| Company / Issuer | UMW Holdings Bhd | Sector | Trading/Services - Conglomerates | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its ratings on UMW Holdings Berhad’s (UMW) RM2.0 billion Islamic Medium-Term Notes (IMTN) Programme (Sukuk Musharakah) at AA+IS and RM2.0 billion Perpetual Sukuk Programme (Perpetual Sukuk) at AA-IS. The ratings outlook is stable. The two-notch rating differential between the two programmes is in line with MARC’s methodology on notching principles of subordinated and hybrid instruments. Rationale UMW’s sizeable market share in the domestic automotive industry, strong revenue generation and healthy capital structure remain key rating drivers. The ratings also incorporate a one-notch rating uplift on assessment of implicit support from UMW’s parent Permodalan Nasional Berhad (PNB), a government-linked investment company (GLIC). The key moderating factors to the ratings are the intense competition in the industry that has weighed on margins, and potential disruption to its automotive production from global supply chain disruptions. For 1H2022, UMW recorded a collective sales volume of 173,254 units, accounting for a substantial 52.3% of total industry volume (TIV) of 331,386 vehicles sold in the country (end-2021: 51.6%), reflecting its sizeable market share. Its key marques are the popular Perodua for the mass-market segment, and Toyota and its sister brand Lexus for the mid-market and up-market segments. This underscores UMW’s competitive strength in its ability to offer models of different price ranges. The sales were supported by the 2022 facelift of the Perodua Myvi and the all-new Toyota Corolla Cross models. The strong automotive sales also benefitted from a tax holiday from June 2020 until end-June 2022. For 2022, UMW is on track to meet its sales target of 320,800 units, supported by backlog orders totalling 280,000 units as at date. We take note that the group has been impacted by component shortages as other domestic automotive players; these shortages have led to a slowdown in order deliveries. Nonetheless, its 51%-held subsidiary UMW Toyota Motor Sdn Bhd (UMW Toyota), has been able to better manage its production schedule through its effective collaboration and coordination with the suppliers. For Perusahaan Otomobil Kedua Sdn Bhd (Perodua), the group has been engaging with local suppliers to minimise risk of disruption from component shortages. UMW also recorded improved performance in its industrial and heavy equipment segments in 2021. The industrial equipment sub-segment has a 50% market share in Malaysia; it mainly undertakes sales and leasing of Toyota forklifts in Malaysia, Singapore, Vietnam, Brunei and China. The higher demand for the heavy equipment sub-segment has been underpinned by resumption of economic activities particularly in the industrial, plantation and construction sectors. Its automotive segment remains key to the group, accounting for 81% and 99% of group revenue and pre-tax profit in 2021. For 1Q2022, group revenue and pre-tax profit improved by 23.6% y-o-y to RM3.7 billion and 34.3% y-o-y to RM255.3 million, due to strong performance of the automotive sector and recovery in demand for equipment operations. The performance is expected to be sustained for the year on the back of stronger economic growth and improvement in consumer sentiments. As at end-March 2022, total borrowings (including 50% of the Perpetual Sukuk) stood at RM3.2 billion. With the redemption of RM750 million sukuk in mid-April 2022, debt-to-equity (DE) ratio is projected to decline to about 0.40x in June 2022 from 0.50x as at end-March 2022. The outstanding notes stood at RM1.3 billion under the Sukuk Musharakah and RM1.1 billion under the Perpetual Sukuk. The group’s liquidity position as of end-March 2022 remains strong with a cash balance of RM3.5 billion which remains supportive to fund capex for expansions and meet operational requirements. Its planned capex of RM800 million for 2022 and an average of RM430 million p.a. for 2023-2025 is expected to be funded internally. The capex will mainly be for new car launches and purchase of rental equipment. At the holding company level, revenue consists of dividend income from its subsidiaries and associates. For 2021, revenue was RM183 million. The holding company’s borrowings which mainly consisted of sukuk would be lower at RM1.3 billion. 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 current balance sheet profile. Rating trajectory Upside scenario Any upside in the rating and/or outlook would consider a sustained improvement in group cash flow and debt metrics with cash flow from operations (CFO) debt coverage of above 0.6x and DE ratio of below 0.3x. The rating agency will also assess the holding company’s metrics, in particular its DE ratio to below 0.5x. Downside scenario The rating could come under pressure if group performance were to deteriorate substantially from expectations and/or changes in shareholding structure and/or debt-funded acquisitions that would sharply weaken its leverage position. Key strengths
Key risks
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