UMW Toyota confirms investing in new RM2b plant

KUALA LUMPUR: UMW Toyota Motor Sdn Bhd (UMWT) yesterday confirmed that it will build its second plant in the country, doubling production to 100,000 units a year when it begins operations in early 2019.
UMWT president Datuk Ismet Suki said UMWT will invest in the RM2 billion project – its biggest investment ever.
The new plant spread over 670,000 sq m will be in Klang, Selangor, and will have an initial annual production capacity of 50,000 units, which can be expanded to meet increased demand.
On concerns that the investment in a new plant will further strain UMW Holdings Bhd's finances, Ismet said UMWT will use its own cash to fund the project.
"We are using our own money, so we are not asking from the parent. As far as this project is concerned, there is no borrowing," he said at a press conference here yesterday.
Given its 51% share, UMW Holdings will need to fork out RM1.2 billion for the second plant. The remaining stake is held by Toyota Motor Corp (39%) and Toyota Tsusho Corp (10%), the trading arm of the Toyota group.
"This investment is not simply to increase production capacity but to increase competitiveness, from volume-oriented production to competitiveness-oriented production for sustainable growth. Looking at the Malaysian market for the mid-long term, we think it will grow moderately so our investment will improve our production capacity for future demand," UMWT deputy chairman Akio Takeyama said.
Toyota Motor Corp managing officer Tatsuro Takami said with the addition of the new plant, it will improve efficiency by separating production into two plants.
The new plant will focus on manufacturing passenger cars, including energy-efficient vehicles, while its current factory will churn out commercial vehicles. "We want to concentrate on delivering high quality cars to the Malaysian market," said Takami.
HLIB Research analyst Daniel Wong noted that although UMWT is in a net cash position, the large investment may potentially affect UMW Holdings' ability to pay dividends.
"They (UMWT) need money to finance this capex and may have a lower leeway to pay dividend to the holding company, which will eventually be forwarded to shareholders," said Wong.
Another analyst concurred, pointing out that UMW Holdings is straining its balance sheet with a current net debt of RM3.5 billion, and plans for an Aerospace Hard Metal Manufacturing Park in Serendah, Selangor, to produce fan cases for Rolls-Royce plc's aircraft engines.
"They (UMW Holdings) are straining their balance sheet but over the longer term, it looks like Toyota has a bigger plan in Malaysia, which could be better," he said.