PETALING JAYA: UMW Holdings Bhd business divisions are set to rebound strongly in financial year (FY) 2021 driven by higher sales volume.

AllianceDBS Research raised its earnings forecast by 7%-10% for financial years (FY) 20-22 on the back of the assumption of higher auto sales and margins.

“We think that the worst is likely over for the group and expect its earnings to pick up in coming quarters, ’’ the research house said.

The house has upgraded the stock to a “buy’’ from hold with a higher target price to RM3.35 from RM2.25 a share.

For the automotive division, demand has remained resilient despite the lack of new launches.

AllianceDBS believes FY21 is going to be an exciting year with two additional completely knocked-down (CKD) models in the pipeline.

The house said demand for its equipment division is expected to be boosted by the resumption of mega projects.

“For its manufacturing division, we expect stronger earnings from the aerospace business. This is on the back of an increase in delivery of fan cases for Rolls Royce’s Trent 7000 engines, ’’ the house said.

However, it pointed out key risks which include resurgence of Covid-19. An increase of cases might force the government to tighten movement restrictions, or worse, implement another lockdown. The potential closure of showrooms could adversely affect auto sales, it added.

Meanwhile, UMW announced that its wholly owned subsidiary, UMW Aerospace Sdn Bhd has made its maiden fan case for Rolls-Royce’s Trent 7000 engines.

It will be delivered to the Rolls-Royce engine assembly and test facility at the Seletar Aerospace Park in Singapore.

The Trent 7000 engines power the Airbus A330neo.

“This marks another important milestone in the UMW Group’s long history as a conglomerate with a strong engineering foundation, ’’ UMW Holding acting president and group CEO Azmin Che Yusoff said.

He said the venture into the aerospace industry is also part of the group’s contribution towards the creation of a highly-skilled Malaysian workforce.

“We are proud that 97% of our workforce at UMW Aerospace consist of Malaysian talent, ’’ he adds.

UMW Aerospace got a 25+5 year contract from Rolls-Royce Plc to manufacture and assemble fan cases for the latter’s Trent 1000 and Trent 7000 engines in August 2015 as a Tier 1 supplier.

“While the group expects the aerospace sub-segment to face headwinds following the outbreak of Covid-19, we are partially cushioned by fan case orders that have been received for the rest of the year, ’’ Azmin said.

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