Stock Name: UCHITEC
Company Name: UCHI TECHNOLOGIES BHD
Research House: AMMB

Uchi Technologies Bhd
(Nov 15, RM1.31)
Re-initiate coverage at RM1.32 with hold call and fair value of RM1.43: We are re-initiating our coverage on Uchi Technologies Bhd with a hold call and a fair value of RM1.43, an 11 times PER multiple of its FY11 earnings. This is a relatively undemanding valuation on the back of a 19 times PER valuation commanded in the technology sector in general.

Uchi has growth opportunities from the current coffee module market, which it has dominance. However, there is lingering concern in Europe, which is the main market for Uchi brand partners' final products, especially given that the euro value is still relatively unstable. On this factor, we reckon valuation on the company would not be stretched further than 15 times circa 2004-2006 valuation during the semicon mini boom period.

Our projection of its FY11 earnings of 13.3 sen per share basically takes into account 1) the growth of existing business; 2) growth in new business stream and 3) thorough cost control on margins.

Our earnings estimate implies an 18% year-on-year (y-o-y) growth rate in the bottomline, supported by a 15% growth in the topline.

The main growth driver is indicated by Uchi's partner in Europe, which supplies the parts for the final coffee machines, pointing towards a growth circa of 10%-15% y-o-y for FY11.

In addition to that, the management is also looking at diversifying away from coffee machines into other households appliances, while maintaining its field of expertise ' heat-related modules. It is currently in early stages of talks with a household appliances brand owner in Spain.

If the talk is fruitful, it may add up to a further 5%-10% of annual revenue to the company, on top of the growth estimates in coffee machines modules.

Consumer confidence in Europe is slowly improving. We reckon, rising demand had driven FY10 growth and shall continue into FY11, as more people find employment.

We rate Uchi as a hold at this junction, on valuation of 11 times PER of 13.3 sen per share. This implies a price-to-book valuation of three times, relatively conservative compared to the historical average in excess of four times, inclusive of the miniboom period. ' AmResearch Sdn Bhd, Nov 15


This article appeared in The Edge Financial Daily, November 16, 2010.