Uchi recorded 1Q22 core PAT of RM26.5m (QoQ: +16.7%; YoY: +28.6%), beating estimates at 29%/28% of our/consensus full year forecasts. Management has guided for low-teens percentage revenue growth in USD terms for FY22 buoyed by strong demand from its products and services. Maintain BUY, with lower TP of RM3.30 based on PE multiple of 15x 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%.

Beat estimates. Uchi registered 1Q22 results with core PAT of RM26.5m (QoQ: +16.7%; YoY: +28.6%), beating estimates accounting for 29%/28% of our/consensus full year forecasts. The deviation was attributable to better-than-expected revenue, coupled with appreciation of USD. Core PAT was arrived after adjusting for (i) forex gain (-RM296k); (ii) loss on disposal of PPE (+RM38k); and (iii) gain on termination of right-of-use assets (+RM1k).

Dividend. None declared (1Q21: None). Uchi typically declares dividend later on in the financial year.

QoQ. Revenue climbed by 12.7% to RM47.9m on the back of (i) increase in demand for the group’s products and services; and (ii) stronger USD (1Q22: RM4.19/USD vs 4Q21: RM4.13/USD). Subsequently, core PAT staged growth of +16.7% to RM26.5m on the back of better sales and higher EBITDA margin recorded (+2.2ppt).

YoY. Top line expanded by 21.0% due to robust demand for the group’s products and services. Sales increased in Europe (+21.1%) and US (+71.9%), which more than offset the decline in Asia Pacific (-4.3%). Bottom line staged an increase (+28.6%) from better EBITDA margin recorded (+2.5ppt) coupled with stronger USD against RM during the quarter recorded (1Q22: RM4.19/USD vs 1Q21:RM4.04/USD).

Outlook. We laud the group’s performance in maintaining growth trajectory with a resilient pace of revenue increase. This commendable showing was recorded despite 1Q historically being the weaker quarter for the group. Management has guided for low-teens percentage revenue growth in USD terms for FY22 buoyed by strong demand in its products and services. We 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. We updated our FY21 audited account and introduce FY24 forecast. We lift our FY22-FY23 forecast by +10% and +17% respectively to account for higher revenue and better margin.

Maintain BUY, TP: RM3.30. In light of rising interest rate environment and cost headwinds, we tweak our PE target lower from 19x to 15x. This valuation multiple is in line with its average 3-year historical PE. Subsequently, our TP is decreases from RM3.83 to RM3.30. 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 - 26 May 2022