Uchi’s results were broadly inline with expectations, registering fullyear net profit growth of 19% driven by better sales of coffee machines by its customer, Jura. We expect Jura’s strong sales momentum to sustain as it penetrates new markets and business segments. With the better 2017 earnings, Uchi also announced a final dividend of 8 sen bringing full year DPS to 25 sen (includes a 10 sen special and 7 sen interim). In our view, there is room for additional capital management initiatives ahead, especially with limited capex requirement and a cash hoard of RM243m. Reaffirm BUY call and TP of RM3.48.

2017 Results Inline With Expectations

Although 4Q17 revenue and earnings were weaker sequentially, this was due to seasonality and has occurred similarly over the last few years. We are thus not overly concerned over the decline nor the margin contraction. Importantly, 2017 revenue and earnings rose respectively by 13% and 27% yoy, while core net profit of RM69.5m (+19% yoy) was within street and our expectations at 102% of respective full-year estimates. DPS for the quarter amounted to 8 sen, bringing full year DPS to 25 sen (2016: 13 sen).

Upbeat on New Energy Control Device for US Market

Uchi has been undergoing qualification for a new product relating to energy control. While we have little information due to confidentiality, we suspect the product’s focus will still surround Uchi’s expertise in ASIC programming and precision. We have yet to model this into our projections although we understand that revenue contribution could account for up to 20% by 2020.

Reaffirm BUY and Target Price of RM3.48

Uchi continues to exhibit robust earnings delivery amidst solid EBITDA margins, testimony of its stringent cost control measures and position as sole supplier of coffee modules for Jura. Thus far, this has anchored the dividend angle for Uchi (dividend yields of 5.6-6.3% over 2018-20E), although we believe that with a new product and revenue driver in place, there could be an added element of earnings growth over the near term. We reaffirm our BUY rating and 12-month TP of RM3.48 based on 20x 2018E EPS. Downside risks: steady appreciation of the RM, a slowdown in global demand for automated high-end coffee machines, new competition and a loss of its customer base.

Source: Affin Hwang Research - 27 Feb 2018