Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Thu, 14 Jan 2021, 12:08 PM


Global News 15 January 2021

Author: kltrader   |  Publish date: Fri, 15 Jan 2021, 11:51 AM

Stocks Snap Two-day Rally: Bond Yields Increase

US stocks fell for the first time in three days and Treasury yields climbed amid expectations President-elect Joe Biden plans Covid-19 relief of as much as $2 trillion. The S&P 500 fell by 0.38% to 3,795.54 while Dow Jones was down 68.95 points (0.22%) to 30,991.52.

Biden Seeks US$1.9 Trillion for Relief in First Economic Plan

President-elect Joe Biden will ask Congress for US$1.9 trillion to fund immediate relief for the pandemic-wracked US economy, a package that risks swift Republican opposition over big-ticket spending on Democratic priorities including aid to state and local governments. The proposal will be followed in coming weeks by a second, broader jobs and economic recovery plan that will include money for longer-term development goals such as infrastructure and climate change, a senior incoming Biden administration officials told reporters.

Powell Bats Down Bond-taper Talk, Warning Against An Early Exit

Federal Reserve Chair Jerome Powell sought to stamp out talk of a premature reduction in the central bank’s massive bond-buying campaign, saying “now is not the time” to hold that discussion. “We know we need to be very careful in communicating about asset purchases,” he said. Now is not the time to be talking about exit. He thinks that is another lesson of the global financial crisis, is be careful not to exit too early.

UK Explores Reform of Workers’ Rights That Would Break From EU

The UK government is exploring reforms to workers’ rights that would break from European Union rules, potentially opening Britain up to retaliatory measures from the bloc. Officials have drawn up proposals that would scrap the 48-hour limit on the length of the working week, according to a person familiar with the matter, who said the plans are preliminary and that ministers have made no decisions yet.

ECB Unanimous on Stimulus Need Last Month But Split on Extent

Members of the European Central Bank’s Governing Council differed over how much additional monetary stimulus was needed at last month’s meeting, even as they accepted the need for action. The council agreed more aid was needed to preserve favorable financing conditions in view of the economic fallout from the resurgence of the pandemic, the downward revision to the projected inflation path, and the resulting risks of an unanchoring of inflation expectations.

German Economy Stalls, Probably Evading Double-dip Recession

The German economy stagnated at the end of last year, probably avoiding a doubledip recession that is engulfing the euro area. The statistics office predicted that the country’s renewed pandemic lockdown won’t have the same severe impact as restrictions earlier in 2020. It estimates output remained flat in the fourth quarter, capping a year that saw an economic contraction of 5%.

Philippine Central Bank Ready to Support More Fiscal Spending

Philippine central bank ready to support more fiscal spending The Philippine central bank is ready to help further support fiscal spending, its governor said, as the government can unleash targeted measures to help the economy through the pandemic. “Monetary policy isn’t the only the game in town, there’s a role for fiscal policy,” Benjamin Diokno said.

Oil Climbs With US Aid Hopes Brightening Consumption Outlook

Oil rose to a new 10-month high in New York on expectations that a potential US$2 trillion economic relief packaged could get Americans consuming more fuel. Brent crude for March settlement gain US$0.36 to US$56.42 per barrel.

Source: Affin Hwang Research - 15 Jan 2021

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Property - Weak Sales Expected During MCO Period

Author: kltrader   |  Publish date: Fri, 15 Jan 2021, 11:50 AM

  • We expect reimposition of the Movement Control Order (MCO) in major property demand states to have a negative impact on property sales during the MCO period of 13-26 January 2021, as sales galleries will be closed.

  • The previous MCO led to a 34% yoy decline in aggregate 1H20 sales of property-related companies under our coverage, due to the weak property market sentiment and job-loss concerns. But core earnings impact is unlikely to be as severe since construction works are mostly allowed.

  • We reiterate our NEUTRAL call on the Property Sector. Key risk is a prolonged MCO, impacting sales. Top BUYs are Sunway and UOA.

Sales Galleries Closed But Building Works Allowed

The Malaysian government has imposed MCO 2.0 for a 2-week period from 13-26 January 2021 in 5 states and 2 Federal Territories, ie, Penang, Selangor, Johor, Melaka and Sabah. The Ministry of Health (MOH) indicated that the maximum period is 4 weeks, if the MCO is extended. The sales galleries/showrooms of property developers will have to close during the period. However, building construction sites are allowed to operate subject to approval by the Ministry of International Trade and Industry (MITI).

MCO Impact May Not be as Severe as Previous Episode

Building construction sites with Centralised Labour Quarters (CLQ) or dedicated transportation services to take workers from offsite CLQ to the sites are allowed to operate if approved by MITI. Based on our channel checks with major property developers, we gather that most of their ongoing projects meet the requirements to continue building works subject to approval by MITI. Hence, progress billings will continue for most property projects and the revenue impact to the developers from MCO 2.0 will likely not be as substantial as the previous MCO (construction sites were not allowed to operate) last year.

Recovery in Property Sales in 2Q20

With the closure of property sales galleries during the MCO 2.0 period, sales will be adversely impacted due to reduced onsite marketing activities and inability to close sales by signing Sales and Purchase Agreements (SPA). However, if the MCO 2.0 duration is just for 2 weeks, the impact may not be as substantial as 1H20 when sales galleries were closed for 47 days during the MCO 1.0 period of 18 March-3 May 2020. We maintain our sales and earnings forecasts for the property-related companies that we cover as we expect pent-up housing demand to drive a sales recovery in 2Q20 before the Home Ownership Campaign ends on 31 May 2021.

Maintain NEUTRAL Call

We believe sector valuations are fair with average 2021E PER at 16x and Price/book of 0.5x. Aggregate sector core EPS is expected to rebound 12% yoy in 2021E from a 33% yoy contraction in 2020E. We reiterate our NEUTRAL call on the sector. Our top BUYs are Sunway and UOA. Key risk is a prolonged MCO impacting sales.

MCO 2.0 impact is not as severe as MCO 1.0

Weak Property Sales in 1H20 Due to MCO

The economic impact of MCO 2.0 is not expected to be as severe since it covers 5 states and 2 Federal Territories (contributes 66.4% of total GDP) and is not nationwide like MCO 1.0 last year. Five essential economic sectors, ie, construction, services, trade and distribution, and plantations and commodities, are also allowed to operate under MCO 2.0. Although building works for most projects can continue, MCO 2.0 in the 6 states will adversely impact property sales of the developers since sales galleries will be closed in the MCO 2.0 affected areas that contributed 47% of total property transaction volume and 70% of transaction value in 9M20.

Sales and Core Earnings Contracted Sharply in MCO 1.0

Aggregate sales and core earnings for major property-related companies under our coverage contracted by 34% yoy and 55% yoy respectively in 1H20. This was mainly due the MCO imposed by the government during a 47-day period on 18 March-3 May 2020. The impact of MCO 2.0 will likely be less severe due to the shorter duration, unless extended, and the property companies’ expansion of online marketing efforts such as virtual property tours following MCO 1.0. Property-related companies with major overseas property projects such as IOI Properties and Gamuda saw relatively less impact due to robust overseas sales. However, property companies that own retail malls and hospitality businesses such as IOI Properties and Sunway were adversely impacted by the MCO due to lower mall footfalls (granting rental waivers to tenants) and hotel occupancy rates.

Earnings Impact Is Likely Less Severe Under MCO 2.0

We believe the core earnings impact will be less severe this time around as the property developers under our coverage are able to operate most of its construction sites during the MCO period. Progress billings to customers can continue during the MCO based on the percentage completion rate. The property developers and their panel of contractors are also better prepared to ensure the building material and equipment supplies are available to minimise disruptions to ongoing construction works. The Standard Operating Procedures (SOP) are also in place to reduce the risk of Covid-19 infections at the construction sites and to meet the government’s requirements to operate during MCO.

Key Earnings Forecast Risk Is a Prolonged MCO Period

MCO 2.0 is for a period of 2 weeks. If the MCO is just for 2 weeks, we believe the impact on sales is not substantial since the first quarter is seasonally a slow quarter due to the festive holidays. There is a risk that MCO could be extended given the surge in Covid-19 infection cases recently and it could take a longer period to flatten the curve. But the MOH indicated that the maximum MCO 2.0 period is 4 weeks. The prolonged period of MCO and the Covid-19 pandemic affects property market sentiment due to concerns of job losses. Retrenchments spiked 278% yoy to 34.8k in 2Q20 and the unemployment rate hit a high of 5.1% in 2Q20. The unemployment rate remains high at 4.8% in November 2020.

Maintain Our NEUTRAL Call on the Property Sector

Property company share prices under our coverage are trading at a sharp average discount to RNAV of 57%, above the 5-year historical average of 48%. Although there is potential downside risk to share prices as the discount to RNAV expanded to a peak of 67% during the previous MCO, we believe the weak property sector outlook in 2021 is reflected in the undemanding sector valuations. We reiterate our NEUTRAL call on the Property Sector. Top sector BUYs are Sunway (diversified conglomerate) and UOA Development (niche developer with strong balance sheet).

Source: Affin Hwang Research - 15 Jan 2021

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ASEAN Weekly Wrap - Can Positive Growth in Philippines Exports Sustain?

Author: kltrader   |  Publish date: Fri, 15 Jan 2021, 11:47 AM

  • Philippines’ export growth rebounded to 3% in November from -2.2% in October, the fastest pace in 10 months
  • Philippines industrial production however recorded a decline of -13.8% yoy in November from -12.3% previous month
  • In Indonesia, retail sales declined by -16.3% yoy in November, from -14.9% in October

Orders for E&E products and demand from China will support exports

Philippines’ export growth rebounded to 3% in November from -2.2% in October, the fastest pace in 10 months, due to exports of electronics products, which accounted for 60.9% of total export. Imports, however, contracted further to 18.9% yoy in November from -18.8% in October, declining at double digit growth for 10 straight months dampened by weak consumer demand. This was reflected in decline of imports of capital goods, which contracted by -15.8% yoy in November. With the decline in imports relative to exports, the country’s trade deficit narrowed to US$1.73bn in November, compared to previous month of US$1.79bn. In the months ahead, we believe that the sustained improvement in the region’s manufacturing sector and sustained recovery in China’s economy, as well as steady sales of global semiconductors, Philippines exports will likely continue show further improvement, but unlikely to be strong. In 3Q20, Philippines’ economy contracted by 11.5% yoy, a smaller contraction when compared to -16.9% in 2Q20. Back in 11 Sept 2020, the Government approved a stimulus package worth PHP165bn to further support the country’s economic recovery. The government also anticipate the recovery on economic activity and exports on the passing of reforms of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. In tandem with the manufacturing PMI in November, the Philippines industrial production (IPI) recorded a further decline of -13.8% yoy in November from -12.3% previous month. This was the steepest pace since August and ninth month decrease in manufacturing output due to Covid-19. The downtrend was influenced by the lower production of machinery and petroleum products. However, with exports showing some signs of improvement, the manufacturing sector will likely show some recovery after the relaxation of ongoing pandemic restrictions.

Separately, in Indonesia, retail sales declined sharply by -16.3% yoy in November, from -14.9% in October, which has remained in contraction for the twelfth consecutive month. The decline in November was due to lower sales of food, drinks and tobacco of -6.6% yoy (-5.6% in October) as well as declines in clothing (-56.6% yoy), fuels (-14.3%) and cultural and recreational goods (-40.3%). Despite weak retail sales, according to Bank Indonesia’s consumer confidence survey, the index in December increased to 96.5 second month increase in a row (from 92 in November) due to expectations of Covid-19 vaccine and enhanced perception of current economic condition. Although below 100 expansion mark, this was the strongest reading since March 2020, where all categories of expenditures and education show improvement. Furthermore, with the beginning of vaccination of the people which begins this week, the survey also noted that consumer expectations of economic conditions remained optimistic led by better expectations of income and job availability.

Source: Affin Hwang Research - 15 Jan 2021

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Sunway REIT- A Tough Year for the Hotels

Author: kltrader   |  Publish date: Thu, 14 Jan 2021, 12:08 PM

  • Low occupancy and ADR, dismal corporate/event bookings and 3 prominent hotels no longer under guaranteed rent dampens earnings.

  • Meanwhile, we remain cautious of the pace of recovery in the retail segment given the reimplementation of MCO which will drag sentiment.

  • Due to the above concerns, we adjust our earnings forecasts by 1-7% for FY21-23E. Maintain HOLD on SREIT with a lower target price of RM1.50.

Hotel Segment to Remain Weak

The hotel segment should remain weak as 3 of its prominent hotels are now operating without guaranteed rent. Additionally, Sunway Resort is also closed for refurbishment for a period of 12-24 months, and to be reopened in phases. Occupancy rate is also expected to remain subdued, hovering below the 40% level given the cross-border travel ban and implementation of interstate/inter-district travels. Notably local occupants only made up 40% of 2019 occupancy. We also note that Sunway has conducted promotional efforts to boost staycations, which should lead to lower daily average room rate (ADR).

Reintroduction of Movement Control Order Fuels Concerns

A reimplementation of the movement control order (MCO) does not bode well for the retail sector. As seen in 2QCY20, Sunway Pyramid, which accounts for half of Sunway REIT’s total revenue and NPI, saw its contributions halved due to the MCO and rental assistance extended to tenants. However, unlike the previous MCO, more retailers are allowed to operate during the duration, hence we expect the impact to be less severe as compared to 2QCY20.

Office assets and maiden contribution from Pinnacle Sunway to the rescue

Elsewhere, we expect the office segment to support SREIT’s earnings in 2021 given its stable performance in 2020. Meanwhile, the maiden contribution from Pinnacle Sunway post its acquisition in November 2020 should further boost earnings. Elsewhere SREIT’s other asset segment’s earnings should remain stable in 2021.

Maintain HOLD With a Lower Target Price of RM1.50

Overall, we trim our 2021-2023E earnings forecasts by 1-7% to incorporate a weaker hotel and retail earnings recovery. We reiterate our HOLD call on SREIT with a lower DDM-derived price target of RM1.50 (from RM1.66) as we increased our cost of equity to 8.8% (from previous 8.2%) due to the risks surrounding the hotel segment.

A Mixed Bag Performance in 2021

Another Round of MCO/CMCO/RMCO Was Implemented

Given the surge in Covid-19 cases in Malaysia, (i) 5 states including Pulau Pinang, Selangor, Melaka, Johor and Sabah as well as federal territories were put under MCO; (ii) 6 states were put under Conditional Movement Control Order (CMCO) namely Pahang, Perak, Negeri Sembilan, Kedah, Terengganu and Kelantan; while (iii) Perlis and Sarawak were put under Rehabilitation Movement Control Order (RMCO) for a period of 2 weeks. Though we expect this to drag sentiment in 1HCY21, the availability and distribution of Covid-19 vaccines in 2QCY21 should lead to better sentiment in 2HCY21 and sequentially to a faster-paced earnings recovery.

Nevertheless, Hotel Earnings Should Remain Subdued

We expect the tourism outlook in 2021 to remain weak due to the expected prolonged restriction in cross-border, inter-state and inter-district travel, which leads us to believe occupancy will remain below 40% throughout 2021. Recall that SREIT has an international : local occupants split of 60 : 40. We also expect hotels to report lower average daily room rates (ADR) due to the promotional activities conducted to encourage staycations. Elsewhere, contributions from event / corporate bookings should also remain subdued in 2021, though we do expect some recovery in 2H21 from expected easement in SOPs on large group gatherings. Overall, we opine that the weak conditions should lead to 3 hotels, namely Sunway Putra Hotel, Sunway Hotel Georgetown and Sunway Clio Hotel, to only contribute the minimum guaranteed rent in 2021.

3 Hotels Without Minimum Lease Guarantees

Meanwhile, Sunway Resort, Sunway Pyramid and Sunway Hotel Seberang Jaya, which made up 28%, 19% and 4% of its FY2020 total hotel revenue respectively, are now no longer under the minimum lease guarantee. Though this arrangement is lucrative in a period of strong tourism activities, it backfires in times of economic downturn. This, coupled with Sunway Resort undergoing a refurbishment exercise for a period of 12-24 months, to be reopened in phases, should further dampen contributions from the hotel segment.

Retail Recovery Imperative to SREIT’s Earnings Recovery

Given that the retail segment makes up 74% and 72% of total revenue and NPI in 2019 respectively, another round of MCO/CMCO/RMCO and interstate/inter-district travel restrictions should slow down SREIT’s path to earnings recovery in 2021 despite more retailers being allowed to operate during the duration. Nonetheless, we are still of the opinion that 2021 will be a year of two halves. While 1HCY21 should still see weak contribution from the malls attributable to expected higher rental assistance given to tenants affected during the MCO period, as they are not allowed to operate (eg: fashion and optical outlets, hair dressers, beauty salons, karaoke and cinema), 2H21 should see a faster pick-up in earnings following the distribution of Covid-19 vaccines and expected easement of SOPs on large gatherings. The MCO affected areas includes Sunway Pyramid, Sunway Putra Mall and Sunway Carnival. However, should there be prolonged movement restrictions caused by a continuous high number of Covid-19 cases, we expect further earnings misses. Elsewhere, we expect rental rebates to continue, given at a case-by-case basis throughout 2021.

Mall Occupancy Remains High; Low Risk of Premature Lease Termination

Nevertheless, despite the lingering weakness in the retail segment, we observed strong occupancy in Sunway REIT’s retail assets. As of Sep-20, average occupancy remained high at 94% with a notable 45% increase in Sunway Clio Mall due to commencement of new tenants. At this juncture, we are not overly concerned of risk of premature lease termination in Sunway REIT’s assets given its stellar track record and prominent locations.

Maiden contribution from the Sunway Pinnacle to provide earnings support

The maiden contribution from the yield-accretive acquisition of Sunway Pinnacle should provide an earnings boost to SREIT in 2021. Meanwhile, other office rentals should remain relatively stable in the immediate term. While we are slightly concerned about the possibility of tenants downsizing their workspaces due to the work-from-home trend which has gained traction due to the ongoing pandemic, we do not foresee this to pose a material impact to SREIT’s earnings in the immediate term. As shown in fig 7, only Sunway Putra Tower reported slightly lower yoy occupancy as of Sep-20 while others reported an increase or full occupancy. While the risk of tenants downsizing their workspace area remains, we believe the possibility of tenants exiting the office asset completely remains low as we believe SMEs and large corporations would still opt to have a dedicated workspace for their employees once the pandemic is over to ensure operational efficiency. Nonetheless, we expect this work-from-home trend to put a lid on any increase in office rental, but it should not have a material implication to the sector within the current or next tenancy cycle. Elsewhere, Sunway University, Medical Centre and Sunway REIT Industrial’s earnings contribution should remain stable as it is not directly impacted by the pandemic.

Maintain HOLD With a Lower Target Price of RM1.50

We cut our FY21-23E EPU forecasts by 1-7% as we adjusted our forecasts to reflect the weakness in the hotel segment, heightened by the absence of minimum guaranteed rent in 3 of its hotels as well as a slower retail earnings recovery due to the re-implementation of MCO. Overall, we maintain our HOLD on Sunway REIT with a lower DDM-derived target price of RM1.50 as we also increase its cost of equity to 8.8% (from previous 8.2%) due to heightened risk to its hotel earnings. While we continue to like SREIT’s diversified asset portfolio, the weakness in the retail and hotel segments as well as earnings dilution from its share placement exercise may cap the share price upside. At 4.4% CY2021E yield, the stock is trading within its - 1SD 5-year historical average, which looks fair. For exposure to MREITs, our preferred picks are Axis REIT and KLCCPSG.

Key risks

Upside/downside risks: (i) faster-/slower-than-expected economic recovery; (ii) lower/higher interest rates; and (iii) stronger-/weaker-than-expected earnings due to lower visitorship to its hotels.

Source: Affin Hwang Research - 14 Jan 2021

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Global News 14 January 2021

Author: kltrader   |  Publish date: Thu, 14 Jan 2021, 11:51 AM

Stocks Rise for Second Day; Treasury Yields Drop

Stocks rose and benchmark Treasury yields retreated for a second day amid optimism the economy will continue to benefit from government support. The S&P 500 rose by 0.23% to 3,809.84 while Dow Jones was down 8.22 points (0.03%) to 31,060.47.

US Core Consumer-price Gauge Cooled Slightly From Prior Month

A key measure of prices paid by US consumers cooled in December from a month earlier as slack in the labor market and muted demand helped keep inflation pressures tame. The core consumer price index, which excludes volatile food and energy costs, increased 0.1% from the prior month after a 0.2% gain in November, a Labor Department report showed. Compared with a year earlier, the core CPI rose 1.6%.

US Business Starts Enjoyed Their Best Year Ever Amid Covid-19

The surge of US business formations in the back half of 2020 has been one of the pandemic’s many surprises. After cratering by 30% in the weeks following the March lockdowns, paperwork filed by prospective businesses started growing in June and finished the year ahead of 2019’s tally by almost a quarter, according to a US Census Bureau analysis of federal tax documents.

Lagarde Defends ECB Economic Outlook Even as Banks Cut Forecasts

The European Central Bank’s latest projections for economic growth in the euro area are still “very clearly plausible” despite the resurgent coronavirus and renewed lockdowns, President Christine Lagarde said. The ECB chief said that many of the uncertainties that previously clouded the outlook have now cleared, including U.S. elections, the Brexit trade deal with the UK, and the start of vaccinations. At the same time, she warned that monetary and fiscal support must continue.

Reinhart Frets World Faces Financial Crisis If Pandemic Lingers

World Bank Chief Economist Carmen Reinhart is worried that the protracted nature of the Covid-19 pandemic may overwhelm household and business balance sheets and develop into a financial crisis. “It’s a cumulative toll,” Reinhart said. This started and continues to be, first and foremost, a health crisis. But it has elements that have morphed into your classic balance sheet problems.

BOE Vows to Improve Its Public Explanation for US$1.2 Trillion QE

The Bank of England will improve the way it communicates about how it stimulates the economy through quantitative easing, a response to an internal report that found the method is poorly understood. A report from the BOE’s Independent Evaluation Office published found the central bank’s 900 billion-pound (US$1.2 trillion) program has been delivered “effectively” but there were “important knowledge gaps” in its technical understanding of the tool.

BOJ Is Said to Mull Downgrading View of Economy Amid Emergency

The Bank of Japan is likely to consider downgrading its economic assessment at a policy meeting next week following the declaration of a partial state of emergency to combat the latest virus wave, according to people familiar with the matter. BOJ officials say the bank needs to discuss its assessment as there is little doubt the latest emergency declaration will take a heavy toll on the economy, the people said.

Oil Rally Pauses With Fuel Buildup Dimming Tighter Crude Supply

Oil’s red-hot rally took a breather as a stronger dollar and rising refined products supplies offset shrinking US crude inventories, capping the price under a key technical indicator. Brent crude for March settlement fell US$0.52 to US$56.06 per barrel.

Source: Affin Hwang Research - 14 Jan 2021

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UMW Holdings - Strong end to 2020

Author: kltrader   |  Publish date: Wed, 13 Jan 2021, 5:32 PM

  • UMW reported strong unit sales for Dec-20, bringing 2020 sales to 59.3k (-15.3% yoy) and 220.2k (-8.4% yoy) for Toyota/Lexus and Perodua respectively – ahead of expectations.
  • Correspondingly, we raise our UMWT and Perodua unit sales to 65k (+9.6% yoy) and 230k (+4.5% yoy) for 2021, pencilling in a modest rebound spurred on by sales tax exemption and new model launches.
  • That said, our forecast 2021 unit sales remains below that of 2019. Post earnings revision of +12-18% for 2020-22E, we are keeping our HOLD rating, with a higher TP of RM3.20. This note marks a change in analyst coverage.

Toyota and Perodua Sales Exceeded 2020 Expectations

UMW registered 9.2k units for Dec-20, bringing total Toyota/Lexus unit sales to 59.3k (-15.3% yoy) for 2020. Its 38% associate Perodua similarly ended the year strongly, recording 25.2k and totalling 220.1k (-8.4% yoy) for 2020. Both marques exceeded initial management targets and ours by 12% / 9% (UMWT) and 5% / 10% (Perodua).

Modest Rebound for 2021E, But Caution Remains

We foresee a relatively better 2021 for UMWT aided by extension of the sales tax exemption and new launches. Meantime, we expect Perodua to remain in vogue given the attractive and affordable pricing nature of the national marque. In total, we expect a +6% volume rebound to 295k units (65k Toyota/Lexus; 230k Perodua), but still falling short of 2019 levels, in view of: i) high element of car sales brought forward in 2020, ii) MCO reinstatement and iii) challenging macro backdrop.

Likewise a Palpable Low-base Recovery for Equipment and M&E

Post 2020’s low base, the equipment segment should see palpable improvement, underpinned by: i) business sectors gradually returning to optimal capacity and ii) pick-up in infrastructure projects. Meanwhile, the manufacturing segment should improve slightly, leveraging on sturdy car sales amid the sales tax exemption period.

Reaffirm HOLD With Higher TP of RM3.20

We lift our earnings estimates by 12-18% for 2020-22E, largely to reflect the better uptake of both Toyota/Lexus and Perodua marques amid the sales tax exemption period and new model launches. At 17x 2021 PER, UMW looks to be trading in a fair range, considering the macro backdrop remains fragile given the prolonged pandemic impact. Maintain HOLD with a higher revised TP of RM3.20.

Source: Affin Hwang Research - 13 Jan 2021

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