Uchi’s 2Q21 core PAT of RM23.3m (+13.2% QoQ; +88.8% YoY) brought 1HFY21’s sum to RM43.9m (+54.5% YoY). This came in line with our and consensus expectations at 51% and 50% 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. Uchi not only remains a compelling yield play (c.5.4%), we also expect the demand for automatic coffee machines to remain elevated supported by its main customer J’s relentless expansion into new markets.

Within expectations. Uchi reported 2Q21 results with revenue of RM42.0m (+5.9% QoQ; +63.1% YoY) and core PAT of RM23.3m (+13.2% QoQ; +88.8% YoY). This brought 1HFY21’s sum to RM43.9m (+54.5% YoY), which came in within expectations, accounting for 51%/50% of our/consensus full year forecasts. 1H21 core PAT was arrived after adjusting for (i) forex gain (-RM2.0m); (ii) loss on disposal of PPE (+RM37k); and (iii) loss on derivative of financial instrument (+RM2.3m).

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

QoQ. With stable demand for the group’s products and services, revenue rose +5.9% to RM42.0m. While the weaker RM has nudged revenue expansion, sales in USD terms chart similar upward trend, increasing +4.2% from USD9.8m to USD10.2m. Subsequently, core PAT registered an increment of +13.2% to RM23.3m on the back of expansion in EBITDA margin (+3.2ppt).

YoY/YTD. Top line climbed by 63.1% YoY/33.1% YTD due to robust demand for the group’s products and services coupled with low base effect from operation shut down when MCO1.0 first implemented. YoY sales to Asia Pacific recovered strongly with +99.9%, followed by Europe +63.0% and USA +2.0%. Core PAT staged an encouraging growth of +88.8% YoY and 56.4% YTD thanks to better EBITDA margin recorded (+6.8ppt YoY/6.7ppt YTD) coupled with lower effective tax rate (2Q21: 0.7% vs 2Q20: 1.9%).

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. Uchi not only remains a compelling yield play (c.5.4%), we also expect the demand for automatic coffee machines to remain elevated supported by its main customer J’s relentless expansion into new markets. With the pandemic inducing a “new normal”, consumers are increasingly switching to home-brewed alternatives. Additionally, with Customer J’s recently launched coffee machine with cold brew option, we expect demand to remain strong buoyed by the rising popularity of chilled brews. Note that this is the first of its kind to offer cold brew with a touch of a button.

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 >5% with tendency to tilt on the high side, acting as an support of any downside risk.

Source: Hong Leong Investment Bank Research - 26 Aug 2021