3Q22 revenue of RM54.7m (QoQ: -4.3%; YoY: +23.1%) translated into core PAT of RM28.7m (QoQ: -2.2%; YoY: +17.4% YoY) which brought 9M22’s sum to RM84.6m (YoY: +23.7%). This came in above expectations, accounting for 84%/86% of our/consensus full year forecasts. We increased our FY22/23/24 forecast by 13%/6%/4% respectively to account for the positive deviation. Maintain BUY, with higher TP of RM3.77 based on PE multiple of 15x pegged to mid-FY23 EPS. Uchi not only remains a compelling yield play (c.6.8%), we also expect the demand for automatic coffee machines to remain elevated supported by its main customer J’s relentless expansion into new markets.

Above expectations. Uchi’s recorded 3Q22 revenue of RM54.7m (QoQ: -4.3%; YoY: +23.1%), translating into core PAT of RM28.7m (QoQ: -2.2%; YoY: +17.4% YoY) which brought 9M22’s sum to RM84.6m (YTD: +23.7%). This came in above expectations, accounting for 84%/86% of our/consensus full year forecasts. The outperformance was on the back of better-than-expected EBITDA margin. 9M22 core PAT was arrived after adjusting for (i) forex gain (-RM7.5m); and (ii) gain on disposal of PPE (-RM13k).

Dividend. Declared interim dividend of 12.0sen per share (3Q21: 9.0 sen per share). The entitlement date will be announced in due course. 9M22 dividend amounted to 12.0 sen per share (9M21: 9.0 sen per share).

QoQ. Revenue moderated by -4.3% to RM54.7m due to the decrease in demand for the group’s products and services. By region, the revenue drop stemmed from reduction from Europe region, declining by -6.7% while demand from US recorded healthy pick up to RM1.0m from RM4k in 2Q22. In turn, core PAT reduced by -2.2% to RM28.7m.

YoY/YTD. Top line chalked in 23.1% YoY/ 26.8% YTD increment due to healthy demand for the group’s products and services coupled the appreciation of USD against RM (3Q22: RM4.4272/USD vs 3Q21: RM4.1776/USD). Sales to Europe continue to rebound strongly YoY with +23.1% followed by US >100% that both offset the weaker sales in the Asia Pacific -23.4%. Core PAT chalked in growth of +23.7% YTD to RM84.6m. The stronger profit was aided by expansion in EBITDA margin (+3.2ppt YTD) coupled with lower depreciation charges.

Outlook. Baring the volatile market with geopolitical conflicts, interest rate hike and rise of global inflation, management reiterates 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.6.8%)

Forecast. We increased our FY22/23/24 forecast by 13%/6%/4% respectively to account for higher revenue and better margin.

Maintain BUY, with higher TP of RM3.77 (from RM3.46) pegged to unchanged 15x PE multiple to mid-FY23 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; (iii) business commanding higher margin vs peers; and (iv) decent dividend yield of >6% with tendency to tilt on the high side.

Source: Hong Leong Investment Bank Research - 29 Nov 2022