KUCHING: UMW Holdings Bhd (UMW) will likely record a strong finish for the fourth quarter of the financial year 2022 (4QFY22), driven by the accelerated automotive production and deliveries during the quarter, analysts observed.

In a report, the research team at Hong Leong Investment Bank Bhd (HLIB Research) noted that post-briefing with UMW, the group guided for continued strong 4QFY22 showing, underpinned by the accelerated automotive production and deliveries during the quarter.

“Given the current high outstanding order backlogs of 60k units for Toyota and 220k units for Perodua, management has guided strong spill over into FY23.

“Nevertheless, we expect the segment’s sales volume to slow down in 2023, after registering record highs of 101.0k units for Toyota (include Lexus) and 282,000 units for Perodua in 2022. There will be 5 new model launches for Toyota and 1 new model for Perodua (and two facelifts) in 2023.

“We also anticipate lower margins on inflationary cost pressures as well as advertising and promotional campaigns for the year. Recently Toyota has also adjusted pricing upwards for some existing models in order to pass through part of the higher costs to consumers. UMW remains reserved on EV demand given the high cost structure and lack of infrastructure,” it said.

Further growth in 2023 will also likely be driven by UMW’s strategising into industry electrification (Go-Green), refurbishments and automation (system integration).

“Recently, there have been increasing demand for heavy equipment for mining sector in PNG and plantation sector in Malaysia, while on-going inquiries for infrastructure projects in Malaysia, Singapore and PNG,” the research team noted.

On its manufacturing division, HLIB Research said that the group’s automotive parts and lubricants are leveraging onto the ongoing strong demand for automotive segment and recovery of economic activities in 2023.

“UMW is in good position with upcoming commencement of new smart lubricant plant (additional 70 per cent capacity) to expand its product lines, lower average costs and capture new markets,” it added.

The research team also pointed out that the production and deliveries of Rolls-Royce fan cases (Trent 1000 and 7000) have continued to gain momentum as airlines ramp up aircraft fleets to meet the resumption of global air travel demand. “Management guided for turnaround in 2023, after making profits in November to December 2022. UMW has also signed a new manufacturing contract with Rolls-Royce to localise ‘rear case’ by 2025. Management will continue to explore new opportunities in high value precision technology manufacturing to expand their capabilities and utilisations,” it said.

All in, HLIB Research raised its forecasts for FY22 by 7.4 per cent, FY23 by 16.5 per cent and FY24 by 3.7 per cent, accounting for higher sales volume.

It maintained its ‘buy’ recommendation on the stock.