UMW a potential beneficiary from ECRL re-alignment, says CIMB-CGS Research

KUALA LUMPUR (April 19): CGS-CIMB Research has maintained its "add" rating on UMW Holdings Bhd at RM3.27 with an unchanged target price (TP) of RM4.20 and said the automotive and engineering group stands to benefit from the proposed re-alignment of the East Coast Rail Link (ECRL) Section C towards the northern route via Gombak and Serendah as it has over 700 acres of landbank assets at the Serendah High Value Manufacturing (HVM) Park.

In a note last Friday, CGS-CIMB analyst Mohd Shanaz Noor Azam said UMW Holdings has circa 732.4 acres of vacant land in Serendah HVM Park, with an estimated net book value of RM73 million or RM2.30 psf.

"This is a deep discount compared to the last transaction conducted in 2019, when it sold off 8.25 acres of commercial land to MCE Holdings Bhd for RM14.4 million (RM40/sq ft).

"We see significant upside for UMW Holdings to unlock its landbank asset with the new ECRL re-alignment," he said.

Mohd Shanaz forecasts solid first quarter 2021 (1Q21) earnings for UMW Holdings, still based on 14 times CY22F P/E. Robust sales volumes from UMW Toyota Motor (UMWT) and Perodua, up 61% and 29% year-on-year respectively, also contributed.

He said the strong sales volume was due to the reopening of economic activities in January to February 2021 and new launches, such as Perodua Ativa, Toyota Vios, and the Yaris facelift, adding that UMW Holdings expects sustained sales growth momentum to 2Q21 given the sales tax exemption and order backlog for UMWT and Perodua.

"Overall, UMWT and Perodua recorded combined sales volume of 74,911 units, which made up 24% of our full-year forecast of 309,000 for the group."

The group newly launched two new sports utility, the Toyota Corolla Cross and Toyota Harrier, both selling out within the first week of launch.

"Although sales volumes from these models are lower than those of Vios and Yaris as they are fully imported completely-built-up (CBU) models, the group is looking to start local assembly for Corolla Cross in 2H21F. We think the introduction of a completely-knocked-down (CKD) Corolla Cross may help to lower its selling price from RM124,000-134,000 to below RM120,000 on the back of higher excise duty exemptions from the expected increase in local content. This will allow the Corolla Cross to better compete with Honda HR-V and drive higher sales volume for UMWT," he added.

At 11.33am, UMW Holdings was unchanged at RM3.29, valuing it at RM3.84 billion.

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