3Q16 earnings surge

Uchi’s 9M16 core net profit grew 12% yoy to RM44m, above expectations and accounting for 81-82% of our and the consensus full-year estimates. Sales in US$ terms remained weak, down 1.1% yoy. Nevertheless with the recent weakness of the RM, currency translation gains in the subsequent quarters could be strong. Maintain Hold but with a higher TP of RM1.81.

9M16 core earnings up 12% yoy, above expectations

Uchi’s 9M16 core net profit of RM44m (+12% yoy) was above expectations, accounting for 82% and 81% of our and the consensus 2016 estimates respectively. The better-than-expected result was due to a combination of stronger revenue growth and higher-than-expected margins. 9M16 EBITDA margin came in at 51% vs. our forecast of 49.5%, while revenue grew 9.3% yoy although this was only due to the weak RM. Sales in US$ terms remained weak, shrinking 1.1% yoy due to soft demand for high-end automated coffee machines. Uchi’s customers’ key markets are also in the Euro region where macro conditions remain frail.

3Q16 earnings jump 28% qoq

Sequentially, 3Q16 revenue and core net profit expanded 16% and 28% respectively. The higher revenue was aided by the improvement in sales during the quarter and also margin expansion. 3Q16 EBITDA margin improved 3.9ppts qoq due to better operating leverage but also the low base in 2Q16.

Maintain Hold, TP raised to RM1.81

We raise our margin assumption and lift our 2016-18 EPS forecasts by 5- 8% At an unchanged PE of 14x on 2017E EPS, the target price is raised to RM1.81. Maintain Hold for 2016-18E dividend yields of 6%. Downside risks include a high dependency on a few customers, weaker-than-expected demand and a sharp depreciation of the US$ vis-à-vis the RM. Upside earnings risks include further weakness in the RM vis-à-vis the US$ which will positively benefit Uchi

Source: Affin Hwang Research - 28 Nov 2016