KUALA LUMPUR: Research houses have maintained their “buy” calls on UMW Holdings Bhd after its wholly owned subsidiary UMW Aerospace Sdn Bhd secured a contract to manufacture rear cases for Rolls-Royce’s Trent 1000 and Trent 7000 aircraft engines worth RM1 billion over a 15-year period.
The contract was announced by International Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz during his visit to UMW’s aerospace plant on Monday.
MIDF Research said RM65 million capital expenditure is expected for the new rear case manufacturing plant and this should be easily manageable given UMW’s gross cash of RM2.8 billion as of the fourth quarter of 2022 (Q4’22).
“UMW Aerospace will be the first Asean aero manufacturer to have this capability, which will allow it to expand its product range beyond fan cases to include other advanced aero components such as jet engine after burners and aircraft wing skin panels,” it said in a note today.
Besides that, MIDF Research said, the new contract win and expansion in technical capability come at an opportune time amid a post-Covid-19 air travel recovery which has led to a swift rebound in aircraft orders for Airbus and Boeing.
“Reflecting this trend, the utilisation rate at the existing UMW Aerospace plant is expected to recover to 70% to 80% levels in FY2023 from 50% in FY2022 whereby FY2023 earnings are expected to exceed pre-pandemic levels.
“The expansion into rear fan case manufacturing underpins earnings momentum beyond the current aviation cyclical recovery,” it said.
Meanwhile RHB Investment Bank Bhd (RHB IB) said it is positive about this development as it signals the recovery of UMW’s aerospace segment, but it is noted that it has been well guided by management and is already in the forecast and target price (TP).
“For FY2023, we are forecasting its manufacturing and en-gineering revenue of RM1.1 billion with a profit before tax margin of 10%, largely driven by the recovery of the aerospace segment,” it added.
MIDF Research and RHB IB have maintained their ‘buy’ calls on UMW, with TP of RM5.28 and RM5, respectively.
UMW’s shares closed at RM3.83 today, up one sen. – Bernama
