Uchi’s 9M19 core profit of RM57m (+16% yoy) was in line with expectations. The better performance was driven by two consecutive quarters of exceptional performance underpinned by growth of its key customer, Jura. This was also aided by robust EBITDA margins lifted by a weak RM. Maintain BUY with an unchanged TP of RM3.09 (based on 17x 2020E EPS).

9M19 Core Earnings Jumped 16% Yoy, Within Expectations

Uchi’s 9M19 core profit of RM57m (+16% yoy) was within expectations, accounting for 73% and 76% of our and street full-year forecasts. The stronger performance all round was driven by growth of its key customer, Jura, which we understand is penetrating into new markets and new product segments, and thus driving the growth of Uchi’s coffee modules for such automated coffee machines. Its 9M19 EBITDA margin remained stable at 53% (+1.1 ppts yoy), testament of management’s cost controls and the company’s ability to preserve margins despite a tough operating environment.

Record Revenue and Profit Quarter

At a revenue of RM43m (+18% yoy) and headline profit of RM22.5m (+15% yoy), Uchi achieved its strongest quarter ever. This was on the back of strong demand from its major customer, while its EBITDA margin was a robust 57.1% (+7.3 ppts qoq). The weaker RM vis-à-vis the US$ contributed to some of the margin enhancement.

Maintain BUY and Target Price of RM3.09

The results reaffirm our positive view on the stock. Uchi should continue to gather momentum as its key customer Jura penetrates new markets and expands its product offering. The strong earnings momentum should also translate to better dividends ahead. As payout is projected to remain at >90%, we are expecting dividend yields to grow and be in the range of 6.1%- 6.4%. Maintain BUY and target price of RM3.09 based on an unchanged target PE of 17x on 2020E EPS. Downside risks: stronger RM, weaker sales of coffee modules and slower-than-expected rollout of its new product.

Source: Affin Hwang Research - 25 Nov 2019