Uchi reported 1Q21 revenue of RM39.6m (-26.1% QoQ; +11.4% YoY) and core PAT of RM20.6m (-35.7% QoQ; +28.2% YoY). This came in within our and consensus expectations at 23.7% and 23.8% of full year forecasts. Management has guided for low single digit revenue growth in USD for FY21 buoyed by strong demand from the Art of Living segment. Maintain BUY, TP of RM3.83 is unchanged based on PE multiple of 19x pegged to FY22 EPS. We like Uchi for its (i) stable earnings drivers being the sole supplier and R&D partner for its customers; (ii) involvement in indispensable market of coffee and biotech division that could serve as future catalysts in this pandemic era; (iii) business commanding higher margin vs peers; and (iv) decent dividend yield of ~6%.

Within expectations. Uchi reported 1Q21 results with revenue of RM39.6m (-26.1% QoQ; +11.4% YoY) and core PAT of RM20.6m (-35.7% QoQ; +28.2% YoY). This came in within our and consensus expectations accounting for 23.7% and 23.8% of full year forecasts, respectively. Core PAT was arrived after adjusting for (i) forex gain (-RM2.1m); (ii) loss on disposal of PPE (+RM16k); and (iii) loss on derivative of financial instrument (+RM2.6m).

Dividend. None declared (1Q20: None). Uchi typically declares dividend later on in the financial year.

QoQ. Revenue declined by -26.1% to RM39.6m on the back of (i) seasonal weakness as sales for the group is historically stronger in the 2H; and (ii) weaker USD (1Q21: RM4.04/USD vs 4Q20: RM4.13/USD). Note that 1Q21 was affected by 10-day temporary plant closure from 25 Jan to 4 Feb due to positive Covid-19 cases among its employees. Subsequently, core PAT fell by -35.7% to RM20.6m on the back of decline in sales and lower EBITDA margin recorded (-6.7ppt).

YoY. Top line climbed by 11.4% due to robust demand for the group’s products and services. Sales increased in Europe (+12.6%) and USA (>100%) which more than offset the decline in Asia Pacific (-42.1%). Core PAT staged an encouraging growth of +28.2% from better EBITDA margin recorded (+6.1ppt) coupled with lower effective tax rate (1Q21: 0.7%, 1Q20: 2.8%).

Outlook. Despite Covid-19 headwinds, we are impressed by the group’s resilience in maintaining growth trajectory with a steady pace of revenue increase. Management has guided for low single digit revenue growth in USD for FY21 buoyed by strong demand from the Art of Living segment. With dividend yield of c.6%, Uchi remains an attractive stock as we opine the demand for its coffee machines to remain robust taking cue from its main Customer J’s active expansion into new markets. Additionally, with the vaccine development against Covid-19 picking up at urgent pace, we see potential for growing biotech contribution from the production of ultra low temperature control modules.

Forecast. Unchanged.

Maintain BUY, TP of RM3.83 is unchanged based on PE multiple of 19x pegged to FY22 EPS. We like Uchi for its (i) stable earnings drivers being the sole supplier and R&D partner for its customers; (ii) involvement in indispensable market of coffee and biotech division that could serve as future catalyst in this pandemic era; (iii) business commanding higher margin vs peers; and (iv) decent dividend yield of ~6% with tendency to tilt on the high side, acting as an support of any downside risk.

Source: Hong Leong Investment Bank Research - 25 May 2021