Uchi’s 3Q21 revenue of RM44.4m (+5.8% QoQ; +9.9% YoY) translated into core PAT of RM24.5m (+4.9% QoQ; +9.1% YoY) which brought 9M21’s sum to RM68.4m (+34.5% YoY). This came in within expectations, accounting for 79%/78% of our/consensus full year forecasts. Management has guided for high single digit revenue growth in USD for FY21 aided by strong demand from the Art of Living segment. Maintain BUY, TP of RM3.83 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’s 3Q21 revenue of RM44.4m (+5.8% QoQ; +9.9% YoY) translated into core PAT of RM24.5m (+4.9% QoQ; +9.1% YoY) which brought 9M21’s sum to RM68.4m (+34.5% YoY). This came in within expectations, accounting for 79%/78% of our/consensus full year forecasts. 9M21 core PAT was arrived after adjusting for (i) forex gain (-RM2.5m); (ii) loss on disposal of PPE (+RM37k); and (iii) loss on derivative of financial instrument (+RM2.8m).

Dividend. Declared interim dividend of 9.0 sen per share (3Q20: 7.5 sen per share). The entitlement date will be announced in due course. 9M21 dividend amounted to 9.0 sen per share (9M20: 7.5 sen per share).

QoQ. Revenue inched up by 5.8% to RM44.4m due to the higher demand for the group’s products and services. While the weaker RM has nudged revenue expansion, sales in USD terms chart similar upward trend, increasing +3.9% from USD10.2m to USD10.6m. In turn, core PAT rose by +4.9% to RM24.5m.

YoY/YTD. Sales staged a 9.9% YoY/23.9% YTD increment due to healthy demand for the group’s products and services coupled with low base effect from operation shut down when MCO1.0 was first implemented. Sales to Asia Pacific continue to rebound strongly YoY with +74.3% followed by Europe +9.1% that both offset the weak er sales in the US -28.8%. Core PAT chalked in growth of +34.5% YTD to RM68.4m. The stronger profit was aided by expansion in EBITDA margin (+4.0ppt YTD) coupled with lower effective tax rate (9M21: 0.8% vs 9M20: 1.5%).

Outlook. We laud the group’s performance in maintaining growth trajectory with a resilience pace of revenue increase. This commendable showing was recorded despite the 60% operation constraints during the Phase 1 restrictions. Management has guided for high single digit revenue growth in USD for FY21 buoyed by strong demand from the Art of Living segment. Uchi not only remains a decent 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 owning to 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 Nov 2021