1HFY21 CNP of RM19.1m met our expectation. However, YTD dividend of 2.0 sen is deemed below. In the immediate term, Ulicorp is likely to dominate market share within the CSS space as smaller competitors wane under the pandemic. Meanwhile, Ulicorp has deferred their capacity expansion plans as construction progress has been affected by the FMCO. Consequently, we reduce FY22E earnings by 8% after stripping off the anticipated capacity expansion imputed. Reiterate OP with lower TP of RM1.85 (from RM2.00) on 10x FY22E PER.

Within expectations. 2QFY21 CNP of RM9.4m brought 1HFY21 CNP to RM19.1m - within our expectation at 46% of full-year estimates.

Declared 1.0 sen dividend, bringing YTD dividend to 2.0 sen. Total dividend declared to date is deemed below our full-year expectation of 11.5 sen (based on 60% payout assumption) as the group may be exercising prudence on the payout ratio amidst uncertainties over the duration of the pandemic. In addition, cash on hand can be utilised to secure raw material purchases amidst the steel shortage currently being experienced within the sectors supply chain. In light of this, we reduce our payout assumption to 30% - translating to a DPS of 5.5 sen for FY21.

QoQ, 2QFY21 CNP of RM9.4m only decreased marginally by 3% despite revenue coming off 15% as FMCO lockdowns (starting June 2021) severely impacted sales deliveries in the month of June. The strong net margins (of 22%) achieved this quarter is mainly attributable to the sharp CRC steel price increase in the month of April and early May while inventory costs lagged. YoY, 1HFY21 CNP of RM19.1m roared back into the black from a loss position of RM5.0m mainly due to stronger steel prices, reduction in competition and the absence of the initial Covid-19 lockdown measures (in Mar 2020) which halted economic activities and capped deliveries in 1HFY20.

Capacity expansion plans on hold. Ulicorp’s initial plans to construct a new factory and hostel (with capex of RM20m) in Nilai is deferred till next year amidst the uncertainties arising from the pandemic. To recap, Ulicorp has planned for the new factory to be completed by 3QFY22 but its plans have been stymied by the FMCO imposed in June. Currently, only earthworks have been done on the site.

Vaccination rates. According to management, 70% of its workforce would be fully vaccinated by Aug 2021 and the group is currently operating at c.60% levels. With the re-opening of the construction and E&E sectors starting 16th August 2021, orders have started to trickle in, and we expect the sales momentum to pick up moving forward.

Likely to dominate market share in the near term. Operating in a fragmented CSS (Cable Support Systems) space, Ulicorp’s competitors who are smaller in size would find it difficult fulfilling end-orders amidst (i) cash-flow issues arising from the prolonged lockdowns and (ii) inability to secure raw materials (i.e. CRC) due to the worldwide shortage. Being a dominant player, this provides Ulicorp the opportunity to increase its market share and command pricing power, translating to strong and stable margins.

Keep FY21E earnings unchanged but reduce FY22E earnings by 8% after stripping out contributions from the anticipated capacity expansion. Reiterate OUTPERFORM with lower TP of RM1.85 (from RM2.00) on unchanged 10x FY22E PER. Risks to our call include: (i) lower-thanexpected sales of CSS products, and (ii) inability to pass on higher steel prices

Source: Kenanga Research - 19 Aug 2021