CGS-CIMB sees steady demand for Uchi Tech’s products

This is as the Penang based company offers an attractive dividend yield for FY22-24F

by ANIS HAZIM / pic source www.uchi.net

CGS-CIMB Securities Sdn Bhd has a ‘Add’ call on Uchi Technologies Bhd (Uchi Tech) with an unchanged target price of RM3.60 on the grounds that the Penang based company offers an attractive dividend yield for the financial year 2022 to 2024 (FY22-24F) supported by its strong net cash and free cashflow.

CGS-CIMB analyst Mohd Shanaz Noor Azam stated that Uchi Tech’s first quarter 2022 (1Q22) numbers were in line with expectations as its revenue grew 21% year-on-year (YoY) to RM47.9 million driven by stronger sales in Europe (21%) and US (72%) for its art-of-living (AL) and biotech segments.

Its Ebitda margin also expanded 3.9% points YoY to 58% in 1Q22, while net profit rose 33% YoY to RM26.8 million.

Uchi Tech attributed the stronger margin delivery to better sales mix and favourable foreign exchange movements following the depreciation of the ringgit against the US dollar.

“No dividends were declared as Uchi Tech typically declares dividends in the second half (2H),” Mohd Shanaz stated in a research note today.

He added that the company has a healthy cash balance of RM160 million (32 sen per share) with zero borrowings as at end of March 2022.

“Uchi Tech incurred higher operating expenses in the quarter due to an increase in staff cost, which rose 25% quarter-on-quarter,” he said.

Despite the higher staff cost, the analyst noted that Uchi Tech’s pretax margin expanded by 1.2% points quarterly to 58% in the period.

The group maintains its guidance of low-teens percentage of the US dollar revenue growth in FY22F underpinned by strong demand for AL products.

“We expect Uchi Tech to deliver a 12% YoY US dollar revenue growth in FY22F, driven by an improving sales mix towards newer control module solutions, which command higher average selling prices,” he added.

CGS-CIMB views Uchi Tech’s AL segment as the main earnings driver, contributing 86% to 87% of the group’s FY22F revenue.

“We see stronger-than-expected demand for AL products, a higher dividend payout and depreciation of the ringgit against the US dollar as potential re-rating catalysts for the stock,” Mohd Shanaz wrote.

On the other hand, sluggish demand for Uchi Tech’s AL products, lower dividend payout and appreciation of the ringgit against the US dollar are key downside risks to the ‘Add’ call.