Thursday, 19 July 2018

Analysts maintain cautious view on UMW Aerospace

Analysts maintain cautious view on UMW Aerospace
January 11, 2018, Thursday Sharon Kong,

KUCHING: Analysts who recently visited UMW Holdings Bhd’s (UMW) Aerospace Rolls-Royce fan case manufacturing plant have left their cautious view unchanged due to the group’s mixed prospects.

As per UMW’s website, UMW Aerospace Sdn Bhd (UMW Aerospace) signed a 25 plus five year agreement with Rolls-Royce Plc (Rolls-Royce) on August 12, 2015 to manufacture and assemble fan cases for Rolls-Royce Trent 1000 and Trent 7000 aero engines, which power the Boeing 787 Dreamliner and Airbus A330 neo aircrafts.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) had factored in RM750 million capital expenditure (capex) allocated for the first 2.5 years.

According to Kenanga Research, UMW Aerospace has delivered 6 fan cases for 4Q17 and additionally, expects to ramp up its production to 80 fan cases for 2018 and 160 fan cases by 2019 before hitting full capacity of 250 fan cases by 2020.

“UMW Aerospace is expected to be profitable at 160 fan cases level in 2019 considering that some front-loaded investments need to be amortised.

“The full production capacity is in line with the full production capacity of Seletar Rolls-Royce engine assembly plant,” the research arm said.

Kenanga Research highlighted that UMW Aerospace expects to post double-digit revenue growth over the next five years.

“However, due to the stringent contract condition with Rolls-Royce, the company is unable to disclose the information regarding the average selling price or the costs breakdown for the fan cases.”

Based on the first nine months of 2017 (9M17) results, the manufacturing and engineering (M&E) segment posted pretax losses of RM13.2 million and Kenanga Research estimated that UMW Aerospace has incurred start-up losses of circa RM47.1 million. This is given that other business in M&E segment remained at the same level as of financial year 2016 (FY16).

The research arm thus factored in the start-up losses in FY17E reported net profit (NP) while maintaining FY17E CNP numbers.

Overall, Kenanga Research maintained its neutral stance on UMW in view of the single-digit growth in the group’s automotive segment sales volume pending the completion of its new Bukit Raja Plant (expected to be operational in early 2019, an additional 50,000 capacity (one-shift) to the current 75,000) and the gestation period for its Rolls-Royce plant (expected to break even in FY19).

“Moving forward, the group’s strategic exit from the oil and gas (O&G) industry is expected to improve the group’s profitability,” the research arm said.

“Furthermore, the automotive segment is expected to be driven by the new models namely 2018 Toyota C-HR completely built up (CBU), 2019 Toyota C-HR completely knocked down (CKD), 2018 Toyota Harrier, all-new Perodua MyVi and face-lifted variants of existing models.”

No comments: