Uchi Technologies Bhd
(May 28, RM2.76)
Upgrade to buy with a higher target price of RM3.09: Uchi Technologies Bhd’s first quarter of financial year 2019 (1QFY19) core profit of RM16.5 million (+18.6% year-on-year [y-o-y]) was within expectations, accounting for 21% and 22% of our and the street’s full-year forecasts. The better earnings were driven by a combination of stronger sales (+9% y-o-y in US dollar terms) as well as currency impact from a stronger US dollar. Earnings before interest, taxes, depreciation, and amortisation margin improved by 4.8 percentage points y-o-y to 51.4%, likely due to the above reasons, although notably margins have remained fairly stable over a longer-term period, in the range of 46% to 58%, with a lot of the margin volatility driven by sales volume, currency and product mix during the quarter. For the latter, coffee machine panels continued to account for the bulk of Uchi’s revenue and earnings.

While earnings contracted 9% quarter-on-quarter, we are not too concerned about the seasonal slowdown. Importantly, margins remain intact while revenues and earnings were relatively stable.

Although earnings excitement is limited, its partnership with its key customer, Jura, has resulted in continued stability in terms of profitability and, in turn, dividends. At a forecast dividend per share of 17 sen for 2019, dividend yield at 6% looks attractive. There could be upside to this should the ringgit remains weak vis-a-vis the US dollar and potentially from the commencement of a new product. Upgrade to “buy” as we favour high dividend yield growers that could remain in the spotlight with escalating market volatility. — Affin Hwang Capital, May 28