• Another Record Quarter as Both Revenue and Earnings Surge
• FY20 results grossly above expectations on stronger-than-expected revenue and margins
• Maintain BUY with a higher TP of RM3.88. Yields at ~5-6% are attractive

Revenue and Earnings Surged Further in 4Q20

4Q20 revenue and core profit surged by 33% and 41% qoq respectively, even after the strong previous quarter, which had recovered from order backlogs due to production halts during the Movement Control Order (MCO) in 2Q20. With the strong revenue and hence better operating leverage coupled with favourable revenue mix, EBITDA margin further improved by 2.9ppts qoq. Overall, this has been the strongest quarter ever reported by Uchi, both in terms of revenue and profit, which we believe is being underpinned by strong demand for household appliances spurred by the work-fromhome trend.

2020 Results Above Expectations, DPS Ahead of Expectations

Cumulatively, Uchi’s 2020 core profit of RM85m (+10% yoy) came in above expectations, accounting for 120% and 124% of our and the street’s full-year estimates respectively. Revenue in US$ terms had contracted by 1.8% yoy and we believe this was also better than management’s earlier revenue guidance of a single-digit decline. The earnings surprise was largely due to a combination of better-than-expected revenue and EBITDA margin. DPS for the full year amounted to 17 sen (FY19: 16 sen), which was also a positive surprise.

Maintain BUY With a Higher 12-month TP of RM3.88

We update our 2021-22E EPS to incorporate the FY20 financial results and also introduce our 2023E EPS of 21.2sen (+6% yoy). We lift our target price to RM3.88 based on a higher target PE of 21x or +2SD its 5-year historical mean, on 2021E EPS (from RM2.92 based on a PE of 18x or +1SD). While valuations are high relative to historical average, the stock continues to trade at a significant discount to sector PE mean. Given the ample market liquidity and stock’s attractiveness as a high-quality dividend play, we think that stock PE multiples can continue to re-rate. We also like Uchi for its strong relationship with its key customer and how it remains the sole supplier of its coffee modules. Its customer, which manufactures deep freezers used within the vaccine logistics supply chain, could provide a near-term earnings catalysts. Key risks include weaker demand, weaker RM against the US$ and gain/loss of customers.

Source: Affin Hwang Research - 25 Feb 2021