KUALA LUMPUR, June 15 — MIDF Research is positive on UMW Holdings Bhd’s unit, UMW Aerospace's prospects and expects the company's margin to improve from the financial year 2025 (FY2025) onwards.

UMW Aerospace’s new rear fan case manufacturing plant is expected to commence commercial operations in 2025 involving a capital expenditure of RM65 million while the supply contract is valued at RM1 billion over a 15-year period, the research house said in a note today following a company visit.

"At present, the rear fan case is imported from the US and assembled into a complete fan. Localisation of the rear fan case is expected to improve UMW Aerospace’s margins from the forecast FY2025 onwards.

"The rear fan case volumes are expected to mirror supply volumes of the overall fan case as it forms part and parcel of the entire fan case module.

"The expansion into rear fan case manufacturing underpins earnings momentum beyond the current aviation cyclical recovery," it opined.

MIDF Research has maintained a 'Buy' call on UMW Holdings with a target price of RM5.28.

"We like UMW as it is a prime beneficiary of a strong recovery in auto demand given its dominant market share of about 52 per cent.

"The equipment division, meanwhile, is a proxy to recovering business momentum, rising infrastructure projects and commodity demand, whereas aerospace is an indirect reopening play on the back of a recovery in global air travel.

"While aerospace currently makes up a small portion of our sum-of-parts, we see this as a strategic exposure with room for both horizontal and vertical growth from the expansion of its aero manufacturing capabilities and the strong platform it has as a Tier-1 supplier to Rolls Royce (RR),” MIDF Research said.

UMW’s net cash position stands at RM796 million which underpins higher dividend payout and mergers and acquisitions potential.

"The key risk to our call is a significant weakening of the ringgit, further lockdowns and a worse-than-expected component shortage situation," it added.

UMW Aerospace was inducted into the UMW group in 2015. It produces aircraft engine fan cases for RR for the Trent 7000 and Trent 1000 engines.

These are under a 25+5-year contract (signed in 2015), with UMW Aerospace being RR’s single source-supplier for both the engines’ fan cases.

UMW Aerospace delivered its first Trent 1000 fan case in 2017, while production of the Trent 7000 fan cases started in 2020.

At 2.45pm, UMW Holdings’ shares eased one sen to RM3.70 with 45,000 shares traded. — Bernama