Uchi’s registered 2Q22 core PAT of RM29.4m (+10.8% QoQ; +25.9% YoY) which brought 1HFY22’s sum to RM55.9m (+36.8% YoY). This came in broadly in-line, accounting for 56%/57% of our/consensus full year forecasts. Overall the demand for its products and services remain healthy which translated to the expansion in top line. Management reiterate their confidence in delivering commendable revenue growth in FY22. Maintain BUY, with higher TP of RM3.46 based on 15x PE multiple to mid-FY23 EPS. Uchi not only remains a compelling yield play (c.6.4%), we also expect the demand for automatic coffee machines to remain elevated supported by its main customer J’s relentless expansion into new markets.

Broadly in line. Uchi registered 2Q22 results with revenue of RM57.1m (+19.2% QoQ; +36.2% YoY) and core PAT of RM29.4m (+10.8% QoQ; +25.9% YoY). This brought 1HFY22’s sum to RM55.9m (+27.2% YoY), which came in broadly within expectations, accounting for 56%/57% of our/consensus full year forecasts. 1H22 core PAT was arrived after adjusting for (i) forex gain (-RM3.8m); (ii) gain on PPE (-RM14k); and (iii) gain on termination of right-of-use assets (-RM1k).

Dividend. None declared. Uchi typically declares dividend later in the financial year.

QoQ. With encouraging demand from the group’s products and services, revenue rose +19.2% to RM57.1m. Apart from good demand, the appreciation of USD agai nst MYR also helped to boost revenue (2Q22: RM4.29/USD vs 1Q22: RM4.19/USD). In turn, core PAT registered an increment of +10.8% to RM29.4m supported by the better sales but was slightly muted by the higher effective tax rate during the quarter (2Q22: 3.5% vs 1Q22: 0.9%).

YoY/YTD. Top line rose up by 36.2% YoY/28.8% YTD due to robust demand for the group’s products and services coupled with stronger USD (2Q22: RM4.29/USD vs 2Q21: RM4.13/USD). YoY sales to Europe expanded by 39.1% while Asia Pacific and US recorded lower sales by -40.7% and -98.5%, respectively. Bottom line grew +25.9% YoY and +27.2% YTD thanks to better EBITDA margin recorded (+2.5ppt YoY/+2.6ppt YTD).

Outlook. We laud the group’s performance in maintaining growth trajectory with a resilient pace of revenue increase. Bearing the volatile market with geopolitical conflicts, interest rate hike and rise of global inflation, management reiterate their confidence in delivering revenue growth in FY22. 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. Additionally, we also like Uchi on the back of its compelling yield play (c.6.4%)

Forecast. Unchanged.

Maintain BUY, TP: RM3.46. We roll over our valuation year to mid-FY23 and as such our TP increases from RM3.30 to RM3.46 based on unchanged 15x PE multiple. 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%.

Source: Hong Leong Investment Bank Research - 26 Aug 2022