UCHITEC (7100) : Uchi Technologies - A stronger brew
Target RM1.43 (Stock Rating: HOLD)
Uchi’s 9M14 core net profit was in line with expectations, forming 74% of our full-year forecast and 72% of consensus. 3Q14 core net profit grew by 38.2% yoy due to higher shipment volumes and a lower effective tax rate following the approval of Uchi’s pioneer status by MIDA in Dec 13. However, we cut our FY15-16 EPS forecasts by 2-4% as we expect a gradual margin expansion due to its slower transition towards bio-tech products. Overall, we maintain our Hold call with a slightly higher target price of RM1.43, based on 11.4x CY16 P/E (still a 30% discount to the target market P/E of 16.3x). While it offers an attractive FY14 yield of 8%, we prefer GHL for exposure to the tech sector.
9M14 highlights
EBITDA margin fell by 2.1% pts from 47.9% pts in 9M13 to 45.8% pts in 9M14 due to a combination of lower shipment volume and higher operating cost attributable to rising wages and utilities cost. Despite this, Uchi managed to record a higher core net profit of RM29.9m vs. RM25.3m last year, mainly due to a lower effective tax rate following the approval of its tax pioneer status by the Malaysian Investment Development Authority (MIDA) in Dec 13. Management highlighted that the group utilisation rate is hovering at the 80% level and remains comfortable with its existing production capacity. The company declared a higher interim dividend of 5 sen in 3Q14 (vs. 4 sen in 3Q13) due to improving profitability, in line with our expectation of 11 sen for FY14.
Rising exposure in biotech segment
The company expects shipment volumes to remain flat for the rest of 2014 due to a volatile economic environment. However, management stays committed to growing its biotech segment (now with 25% revenue contribution), which is the second largest revenue driver for the group after the art-of-living segment. The company expects to raise the segment's contribution to 50% within the next three years by focusing on designing and manufacturing of biotech products. We like Uchi’s strategy of capturing the higher-margin segment in biotech, but this could be a slow process given its high reliance on art-of-living products.
Dividends the bright spot
We see limited upside potential from the current level given the lacklustre prospects and industry demand weakness. But we maintain our Hold rating on the stock due to its attractive FY14/15 yields of 7.8%/8.2%.
Source: CIMB Daybreak - 25 November 2014
Target RM1.43 (Stock Rating: HOLD)
Uchi’s 9M14 core net profit was in line with expectations, forming 74% of our full-year forecast and 72% of consensus. 3Q14 core net profit grew by 38.2% yoy due to higher shipment volumes and a lower effective tax rate following the approval of Uchi’s pioneer status by MIDA in Dec 13. However, we cut our FY15-16 EPS forecasts by 2-4% as we expect a gradual margin expansion due to its slower transition towards bio-tech products. Overall, we maintain our Hold call with a slightly higher target price of RM1.43, based on 11.4x CY16 P/E (still a 30% discount to the target market P/E of 16.3x). While it offers an attractive FY14 yield of 8%, we prefer GHL for exposure to the tech sector.
9M14 highlights
EBITDA margin fell by 2.1% pts from 47.9% pts in 9M13 to 45.8% pts in 9M14 due to a combination of lower shipment volume and higher operating cost attributable to rising wages and utilities cost. Despite this, Uchi managed to record a higher core net profit of RM29.9m vs. RM25.3m last year, mainly due to a lower effective tax rate following the approval of its tax pioneer status by the Malaysian Investment Development Authority (MIDA) in Dec 13. Management highlighted that the group utilisation rate is hovering at the 80% level and remains comfortable with its existing production capacity. The company declared a higher interim dividend of 5 sen in 3Q14 (vs. 4 sen in 3Q13) due to improving profitability, in line with our expectation of 11 sen for FY14.
Rising exposure in biotech segment
The company expects shipment volumes to remain flat for the rest of 2014 due to a volatile economic environment. However, management stays committed to growing its biotech segment (now with 25% revenue contribution), which is the second largest revenue driver for the group after the art-of-living segment. The company expects to raise the segment's contribution to 50% within the next three years by focusing on designing and manufacturing of biotech products. We like Uchi’s strategy of capturing the higher-margin segment in biotech, but this could be a slow process given its high reliance on art-of-living products.
Dividends the bright spot
We see limited upside potential from the current level given the lacklustre prospects and industry demand weakness. But we maintain our Hold rating on the stock due to its attractive FY14/15 yields of 7.8%/8.2%.
Source: CIMB Daybreak - 25 November 2014
