Uchi’s 1Q17 core net profit was flattish at RM14.7m (+1% yoy). This was nevertheless within expectations and accounted for 26% of our and street 2017 estimates. Management continues to guide for flattish sales in 2017 with few near term re-rating catalysts. Maintain HOLD as 2017-19E dividend yields of c.7% look attractive. We raise our TP to RM1.85 after rolling forward our valuation horizon.

1Q17 Core Earnings Flat Yoy, Within Expectations

Uchi reported 1Q17 revenue and core net profit of RM32.5m (+6% yoy) and RM14.7m (+1% yoy), respectively. The latter accounted for 26% of our and street 2017 estimates and thus was within expectations. Despite the revenue growth in 1Q17, EBITDA margins were softer by 2.4ppts yoy, declining to 46.7%. We believe this was due to product mix and related to the timing of new product launches. We are also not too worried about the margin compression as management has consistently demonstrated effective cost control over the years. Moreover, historical EBITDA margins have ranged between 46% and 53%.

1Q17 Earnings Up 4% Qoq

1Q17 revenue and net profit were higher by 2.5% and 3.7%, respectively, despite a 2.9% decline in sales in US$ terms. Earnings growth has thus continued to be driven by the weaker RM vis-à-vis the US$. The 1Q17 EBITDA margin was nevertheless flat at 46.7% (+0.6% qoq).

Maintain HOLD; Raising TP to RM1.85

We leave our forecasts unchanged, as we expect flattish earnings growth over 2017-19. We await further order visibility from its new deep freezer product and, as such, we think near-term earnings will continue to be supported by its coffee modules and laboratory precision equipment, for which management expects flattish sales in 2017. We keep our HOLD rating as the stock’s 2017-19E yields of 7% look attractive. That said, we raise our 12-month TP from RM1.81 to RM1.85 (based on an unchanged 14x on 2018E EPS) after rolling forward our valuation horizon. Risks include a high dependency on a few customers, greater- or weaker-thanexpected demand and a sharp fluctuation of the US$ vs. the RM.

Source: Affin Hwang Research - 23 May 2017