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Date : 05 March 2021
UCHI TECHNOLOGIES BERHAD (UCHITEC)
Current Price : RM3.52
UCHITEC - It's a BUY SIGNAL.
"GET YOUR TICKET AGAIN BEFORE IT'S TOO LATE AT RM5.85 " - Kim
On 5th & 8th February 2021, I had wrote and mentioned for entry this stock from RM2.93. It already shot up to second target price at RM3.20 & RM3.50.
KIM'S TARGET PRICE
The TP has been upgraded as follows:-
Kim's Target Price:
TP1: RM3.80 (immediate)
TP2: RM4.50
TP3: RM5.85
Warrant: UCHITEC-CI
(Time-Frame : Refer KGT)
The Key :-
1. Good fundamental stock.
2. Cash Rich & Zero Debt company.
3. Incoming Good Q1FY21 report next June.
4. Involved with storage vaccines (Deep freezer) in Europe.
5. Good dividend payout
WHAT KIM SAY?
"UCHI develops and manufactures products for laboratory and industrial instrument applications such as precision weighing scales, deep freezers, centrifuges, and pipettes. Their clients include Sartorius Group, based in Germany (FY2019 Revenue was €1,827m), and Eppendorf, a leading life science German company."
WHY I PICKED THEM AS A GEMS?
"I like Uchi for its strong relationship with its key customer and how it remains the sole supplier of its coffee modules. Its customer, which manufactures deep freezers used within the vaccine logistics supply chain, could provide a near-term earnings catalysts" - Kim
On news 14th December 2020 - SLS and Eppendorf to supply ultra-low temperature freezers for UK COVID-19 vaccines | SelectScience
SLS and Eppendorf to supply ultra-low temperature freezers for UK COVID-19 vaccines
Scientific Laboratory Supplies (SLS) and
one of the leading international life sciences companies, Eppendorf,
have been chosen to provide ultra-low temperature (ULT) freezers for the
country’s supply of COVID-19 vaccines.
SLS – one of the UK's largest
independent suppliers of chemicals, laboratory equipment and consumables
– was awarded a contract by the Department of Health and Social Care
(DHSC) to equip two central storage sites and 54 regional hubs with the
vital laboratory equipment required for safe and secure storage of the
newly developed vaccine.
SLS has over 25 years of experience
supporting the UK life sciences and healthcare sectors with a wide range
of laboratory equipment, and has worked closely with Eppendorf, the
DHSC and the NHS to ensure that these freezers would be ready as soon as
a vaccine became available. The SLS team provided information and
advice, identifying Eppendorf’s UK-manufactured ULT freezers as the best
suited to the vaccination programme’s needs. The contract will provide
380 of the 101 litre under-bench units, and 60 of the 570 litre mass
storage units, vastly increasing the sites’ current capacity to safely
store the vaccine. The company is also coordinating the delivery,
installation and testing of the units, as well as supplying the personal
protective equipment necessary for each site, allowing the entire
rollout to be completed in a matter of weeks.
Bob Mclaughlin, Sales Director at SLS,
explained: “This is an extremely ambitious and challenging project as,
until recently, we didn’t know when a vaccine might be approved, or what
its storage requirements might be. Open communication and adaptability
have been essential, and we have worked side-by-side with Eppendorf to
develop a strategy that would allow us to deliver and validate these
large, heavy ULT freezers to almost 60 sites at very short notice. We
are very proud of what we have achieved, providing everything on time
and on budget to help in the UK’s fight against SARS-CoV-2.”
Steve Dey, Head of European Segment
Marketing at Eppendorf UK, added: “Eppendorf is very proud that products
we have long provided to the global life science community will assist
with efforts to beat SARS-CoV-2. Working closely with our long-term
partner SLS and our UK manufacturing site, we are extremely pleased that
our ultra-low temperature freezers will be in the front line,
supporting the NHS and the British public.”
ANOTHER KIM REASON WHY HE CHOOSED UCHI :-
The main product of Uchitec is electronic control system. By its application, it can be categorized into
1. For household art-of-living products, mainly fully-automated coffee machines
Uchi used to be dependent on several coffee manufacturers, which includes the likes of Nespresso, Krups, Saeco, Bosch and Jura, for business revenue. This business model changed when Uchi signed an exclusive agreement with Swiss-based coffee machine manufacturer, Jura last 3 years. This agreement eventually led to Uchi being the sole source for Jura’s coffee machine modules, which aided the latter with technological improvement and upgrades and thus provided Jura with an edge over competitors. While Uchi still manufacturers some coffee modules for the other brands, but once these are removed from the shelves, they will not be replaced and therefore will not be used in future models.
- The Rise In Home Coffee Consumption
Out-of-home coffee consumption, such as
in cafés and restaurants, makes up around 25% of total consumer demand
for coffee. So, when some 95% of these businesses closed in early 2020,
temporarily or permanently, the coffee industry took a tremendous hit.
2. For biotechnology laboratory or industrial instruments, such as weighing scales, centrifuges and deep freezers.
Among the two categories above,
art-of-living products is the product category that contributes the
most, at 81% of revenue as of financial year 2019. Biotechnology
products contributed 18% of revenue in the same financial year.
Uchitec holds three 100%-owned
subsidiaries, two in Malaysia and one in China. Its subsidiary Uchi
Optoelectronic (M) in Malaysia, or called “UOM”, is the main operating
unit performing R&D activities and manufacturing of electronic
control modules, while the other two subsidiaries are assembly arms of
UOM. It is also worth to take note, according to responses from
management during annual general meeting (AGM) 2020, due to trade war
between US and China, company is adjusting production volume in China
factory and in Penang factory.
- Growing the biotech segment
The biotech segment accounts for the remaining 21% of Uchi’s revenue. Uchi serves 2 major customers here, namely Sartorius and Eppendorf, which are both international pharmaceutical and laboratory equipment suppliers, manufacturing electronic modules for use in precision weighing scales, electronic pipettes and deep freezers.
- Optimistic on future growth
While the ambition had been to grow this division, which would be positive as it carries higher margins, the revenue split has been pretty stable over the years. I am nevertheless optimistic that revenue will eventually grow as trust and relationships are built leading to a higher number of new products outsourced (the deep freezer for Eppendorf was one of the more recent products). Moreover, the higher manufacturing cost in Europe, Malaysia could be another reason for product transfer, as we believe that Uchi offers better cost-efficient solutions. Also SLS and Eppendorf to supply ultra-low temperature freezers for UK COVID-19 vaccines!!!!
- Ultra-low Temperature Freezer Market: Key Players
The ultra-low temperature freezer
market is fairly fragmented in nature. Several key players hold a
worthwhile position in the market. These players are observed to be
engaged in organic as well as inorganic growth strategies. Leading key
players of the ULT freezer market are Eppendorf AG, Helmer Scientific,
Panasonic Healthcare Corporation, Thermo Fisher Scientific, Arctiko A/S,
Bionics Scientific Technologies (P) Ltd, Glen Dimplex, Haier
Biomedical, LABCOLD, and Remi Group.
3. ODM business
Uchitec is original design manufacturer
(ODM) of electronic control system. Their products are not finished
products, but partial products that need to be further assembled and
completed by customers.
More than 90% of their products are
exported to Europe. More precisely, exported to Switzerland, Portugal
and Germany. The breakdown percentage of revenue contribution from these
three countries has not been changed much, at least since 2017 when
this information started to disclose in annual report. In case you
wonder who is biggest customer of Uchitec, it is Swiss coffee maker
Jura.
4. High profit margin
Uchitec is known for its capability in
maintaining a very high operating profit margin. From disclosure in
annual reports. operating profit margin has been at a level of above 40%
since 2000. Note that this operating margin is calculated after taking
account of raw material cost, employee expense, depreciation and R&D
expense, so it is indeed very impressive.
5. Net cash company
Uchitec has zero borrowing
Back in 2017, Uchitec had even more cash, standing at RM243 million. In 2018, management thought it was not necessary to hold so much of cash, therefore about RM90 million was paid back to shareholders as capital repayment
6. Current Financial highlights
-
Revenue and Earnings Surged Further in 4Q204Q20 revenue and core profit surged by 33% and 41% qoq respectively, even after the strong previous quarter, which had recovered from order backlogs due to production halts during the Movement Control Order (MCO) in 2Q20. With the strong revenue and hence better operating leverage coupled with favourable revenue mix, EBITDA margin further improved by 2.9ppts qoq. Overall, this has been the strongest quarter ever reported by Uchi, both in terms of revenue and profit, which we believe is being underpinned by strong demand for household appliances spurred by the work-fromhome trend.
-
2020 Results Above Expectations, DPS Ahead of ExpectationsCumulatively, Uchi’s 2020 core profit of RM85m (+10% yoy) came in above expectations, accounting for 120% and 124% of our and the street’s full-year estimates respectively. Revenue in US$ terms had contracted by 1.8% yoy and we believe this was also better than management’s earlier revenue guidance of a single-digit decline. The earnings surprise was largely due to a combination of better-than-expected revenue and EBITDA margin. DPS for the full year amounted to 17 sen (FY19: 16 sen), which was also a positive surprise.
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7. Improved outlook has helped PE multiple re-rating
Uchi’s stock price has re-rated after the recent 4Q20 results announcement,
driven by management’s guidance of an improved outlook over the near
term. This is a marked contrast to its outlook and guidance over the past few
years, which have been sombre and mostly expecting sales to be flat.
8. Earnings upside risk is real
I think that positive earnings risks are likely considering Jura’s confidence
in growing its business in new geographical markets while gaining
momentum in the office and professional segment (which could help in
margin expansion). Meanwhile, I also believe that there is scope for Uchi
to secure new products/customers, as management has continually been
participating in trade shows and showcasing its abilities and offering costcompetitive solutions.
9. Fair Value (RM4.88) and My TP RM5.85
In my view, UCHITEC current price is 36.93% below estimated fair value. So, I will add 20% from FV 4.88 = RM5.85 is my target price.
10. Maintain BUY with higher target price of RM5.85
With the improved latest earnings growth prospects and potential capital
management initiatives, I believe Uchi’s PE multiple could continue to
re-rate over the near term. Moreover, the company is well managed and
prudently run, as reflected in its expanding cash position and zero debt.
11. The price-to-earnings ratio (P/E ratio)
If we take comparison to the industry’s
such as Vitrox, Penta, Greatech, that have price-to-earnings (PE) ratios
in the range of 60-80 (PE). But for UCHI only 19 P/E. So I foresee UCHI
P/E must and will up at least 31 (P/E) = RM5.85
12. Dividend Insights
UCHI tend to be popular with investors,
and for good reason and some research suggests a significant amount of
all stock market returns come from reinvested dividends. If you are
hoping to live on your dividends, it's important to be more stringent
with your investments than the average punter.
In this case, UCHI likely looks
attractive to investors, given its 4.9% dividend yield and a payment
history of over ten years. It would not be a surprise to discover that
many investors buy it for the dividends. Some simple analysis can offer a
lot of insights when buying a company for its dividend.
12. Positive Profit Growth
UCHITEC managed to achieve better profit growth on the past 2 quarters by average +69%.
Past Quarter Reports
| Quarter Date | Revenue (RM) | (%) | EPS (RM) | (%) |
|---|---|---|---|---|
| 2020-12-31 | 53,564k | +33% | 0.072 | +36% |
| 2020-09-30 | 40,418k | +57% | 0.0528 | +102% |
| 2020-06-30 | 25,721k | -28% | 0.0262 | -27% |
| 2020-03-31 | 35,553k | -10% | 0.0357 | -19% |
| 2019-12-31 | 39,443k | -8% | 0.0439 | -14% |
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LETS JOIN KIM'S STOCKWATCH GROUP?
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Best Regards,
KIM
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