KUALA LUMPUR: Uchi Technologies Bhd is expected to register steady margins supported by introduction of new product model with better features. 

Affin Hwang Capital noted that Uchi's earnings margins had steadily increased in the last decade, from 46 per cent in 2013 to 59 per cent in 2022. 

"The exclusivity as a key supplier of its coffee module product to its key customer and the strong alliance created has helped build a partnership that allows both parties to grow. 

"Over the years, improvement in design and manufacturing has also meant that economies of scale has been better achieved through more common parts inevitably lifting efficiency. 

"More importantly, we think that the margin enhancement is also driven by favourable product mix changes in favour of higher end models which see most of the enhancement in product features.

"Lastly, the depreciation of the ringgit has played a role given that sales in US dollar terms had only risen by 63 per cent over the period," it said in a note. 

It added that the acceleration of new models will also be beneficial to Uchi as the pioneer tax status is only applicable on such products. 

It is estimated that only 14 per cent of its products are qualified for tax exemption, although should gradually increase over time as new products are introduced while older ones reach end of life.

"Overall, management maintains its 2023 revenue growth guidance of high single digits in US dollar terms, implying a relatively firm fourth quarter of 2023. 

"With clear production visibility in the next three months, we are not expecting any negative surprises near term and continue to expect market-share gains by its customer longer term. 

"We continue to believe that the fully automated coffee machine market is underpenetrated, while its major European customer continues to gain traction in the high end segment."

Affin Hwang kept its "Buy" call on the stock with a target price of RM4.20.