FW: Site visit: UMW Holdings (UMWH MK; BUY; TP: MYR6.65) - Making things fly

 

 

Just a quick email update from our site visit to UMW Aerospace's spanking brand new plant in Serendah yesterday. UMW Aerospace's presentation slides are attached, along with our recent report on UMWH.

 

UMW Holdings (UMWH MK; BUY; TP: MYR6.65) - Making things fly

• Sets foot in high-value manufacturing (HVM) in the aerospace industry. UMWH's M&E division has delivered 4-5 units of fancases for Rolls-Royce's Trent1000 aircraft engines in 2017; the first unit was delivered on 29 Nov 2017 at record delivery time (since inception of UMW Aerospace) in all of Rolls Royce's aerospace supply chain. Going forward, UMWH expects to deliver ~80 units in 2018, ~160 units in 2019 and possibly ~250 units in 2020; with this expected delivery schedule, UMWH expects this operation to hit breakeven point by end 2019.
• More about the aerospace engineering plant. Boasting automation level of >60%, UMWH believes that its still new exposure in HVM will have many legs to grow. While the immediate aim is to fulfill Rolls Royce's requirement for the fan cases in order to win further components outsourcing, UMWH is also eyeing precision engineering works from various other sectors (i.e. energy and advanced land transportation – UMWH's current facility and equipment has a precision engineering accuracy of up to 10 micron small). The Trent1000 fan case, currently produced, is made out of ~4000 components whereby only 2 main parts are being machined by UMWH. For this, there are much more room for UMWH to offer its services in the future. For this aerospace project, UMWH has also received multiple incentives from MIDA and MITI, including matching grants and tax exemptions for an undisclosed number of years.

·         For now, our forecasts, BUY rating and MYR6.65 TP are unchanged. We believe that there's still room for UMWH to see earnings recovery from both (i) strength in MYR (currently USD1/MYR4.01 vs our full-year expectations of USD1/4.10) for the auto division and (ii) faster-than-expected turnaround of the M&E division from a good progress in the aerospace division. Other potential earnings catalyst includes narrower losses as and when UMWH successfully disposes its non-core assets, mainly related to O&G. Our last official note (attached for your reference) was published on last Friday, 5 Jan 2018.

 

 

 

 

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