UMW Aerospace to break-even in 2019

UMW Aerospace to break-even in 2019

January 11, 2018 0 By User

Picture Credit: UMW, JF APEX

An analyst report indicates that UMW Aerospace Sdn Bhd is expected to break-even the financial year 2019.

UMW Aerospace delivered its first unit of fan case in Nov 2017 and has completed 6 units of fan case in last year.

The Group, recognised by Rolls-Royce as its Tier 1 supplier for fan case outside the UK, is expected to ramp up another 80 units and 160 units of fan cases in FY18 and FY19 respectively.

It will achieve full capacity of 250 units fan cases in 2020.

“Break-even will likely in FY19 onwards as the Group’s aerospace business is still making losses, bearing high operating cost to build up the plant and high depreciation charges,” said JF Apex Research after meeting with the team of UMW Aerospace.

The Group is also expected to see a double-digit revenue and net profit growth from the Manufacturing and Engineering (M&E) segment by 2021.

Following this, the M&E segment’s contribution to the Group level to increase to 10% from current contribution of around 5%

“We met UMW Aerospace Sdn Bhd’s team and visited its new manufacturing plant for Rolls Royce fan case in Serendah recently. We came back feeling reassured about the Group’s rationalization plans as well as its aerospace business,” said the research house.

In Aug 2015, UMW signed a 25+5 year contract with Rolls Royce to manufacture fan cases for Trent 1000 & 7000 engines, which used in Boeing 787 Dreamliner and Airbus A330neo.

Since then, the Group has invested RM750m to build the manufacturing plant with c.30% cost to manufacture the fan cases.

The land in which UMW Aerospace occupies currently is rented from UMW Corporation. The fan cases produced in UMW’s Serendah facility will be handed over by truck to Rolls Royce’s engine assembly and test facility in Seletar Aerospace Park, Singapore.

We maintain our earnings forecasts for FY17F while revise upwards our earnings forecasts for FY18F by 24.3%.

“We maintain HOLD call on UMW with a higher target price of RM6.00 (previously RM5.20) following our earnings upgrade,” said JF Apex.

It said while it reckons that the worst is over for the Group, “we have yet to see any catalyst to drive the share price. We are still cautious on its outlook, as affected by some downside risks such as tepid consumer sentiment and fluctuation in foreign exchange.”