UMWH Holdings (UMWH MK; SELL; TP: MYR4.50) - A drive downhill

We have result notes on UMWH and Pecca today.

UMWH Holdings (UMWH MK; SELL; TP: MYR4.50) - A drive downhill

• 1Q16 core earnings plunged 86% QoQ, 90% YoY. 1Q16 core net profit of just MYR17m met only 5% of our and consensus initial full-year forecasts; expect major downgrades by consensus. No dividends were declared. We cut FY16/17/18 earnings forecasts by 70%/53%/47%. Correspondingly, our SOP-based TP is lowered to MYR4.50. Imminent exit from FBMKLCI index poses further downside risk to share price.
• Where’s the brake? End of the tunnel remains out of sight with still downside risk in its key divisions (i.e. auto and O&G). Also, its investment into the aerospace engineering business for Rolls Royce would likely see start-up losses over the next few years. Expensive valuations at 64x/36x FY16/FY17 PERs (5-year mean: 23x), unattractive dividends of just 1% (based on 50% DPR) and poor earnings outlook reaffirm the basis for our SELL rating.

PECCA Group (PECCA MK; BUY; TP: MYR1.75) - Below expectation

• 3Q earnings down 33% QoQ. While a weaker 3QFY6/16 was not unexpected, the quantum of the shortfall was a negative surprise. We cut our FY16/17/18 net profit forecasts by 23%/8%/8% to account for weaker orders especially from the OEM division (refer to table overleaf), dragged by softer demand for Toyota and Proton.
• Re-rating from new opportunities. We believe that Pecca will continue to benefit from the rising adoption of leather car seats (in both Malaysia and Thailand) despite this short-term blip in earnings. Pockets of opportunities may also arise from refurbishment works for aircrafts and cinemas in the near future given its core competency.