9MFY19 CNL of RM1.1m is deemed within our, but below consensus, full-year estimate. No dividend was declared as expected. FY19E/FY20E earnings maintained along with UNDERPERFORM call and Target Price of RM0.400 based on 0.3x FY20E BV/share.

Within expectations. We deemed the 9MFY19 results as within our expectation but below consensus estimate. This is because historically, the third quarter has always been a strong quarter and we also expect lower margins to drag future earnings. No dividend was declared, as expected.

Results’ review. YoY, 9MFY19 registered CNL of RM1.1m compared to CNP of RM4.1m in 9MFY18, mainly due to: (i) decrease in revenue to RM140.4m (-9%) amid softer market condition, and (ii) negligible margin as compared to 4% in 9MFY18, largely caused by higher labour and depreciation costs. QoQ, 3QFY19 recorded slightly higher CNP of RM0.2m compared to RM0.1m in the preceding quarter due to recovery in revenue to RM51.5m (+15%) which was partially offset by higher loss margin of 5% (+4ppt) in the electrical lighting segment.

Outlook. The outlook for the sector remains uninspiring, underpinned by weak prospects in the construction industry and stiff competition from other new players. ULICORP's performance is highly premised on their ability to fend off the competition in this weak market environment given that they currently command a market share of c.40%.

Earnings review. Post results, no changes to our forecast as we expect lower revenue amid softer market condition and lower margin resulted from higher production cost.

Maintain UNDERPERFORM on ULICORP with unchanged TP of RM0.400 based on Fwd. P/BV of 0.3x applied to FY20E BV/share of RM1.31, which is at its 5-year trough levels and -1.5SD-level, in line with the sector negative sentiment and challenging operating environment.

Risks to our call include: (i) higher-than-expected sales of CSS products, and (ii) lower-than-expected steel prices and overhead costs.

Source: Kenanga Research - 29 Nov 2019