9MFY21 CNP of RM27.0m broadly met expectation at 65%, as we expect 4QFY21 to come in strong to meet our FY21 target of RM41m. No dividend was declared for 3QFY21 – nonetheless, YTD dividend of 4.0 sen is in line to meet our 5.5 sen full-year target. Keep FY21/22E estimates and reiterate OP with unchanged TP of RM1.85 on 10x FY22E PER.

Within expectations. 3QFY21 CNP of RM7.9m brought 9MFY21 CNP to RM27.0m, broadly within our expectation at 65% of full-year estimate. We expect a strong 4QFY21 to deliver our target of RM41m backed by: (i) the absence of lockdowns and (ii) higher operating capacity of 100% (vs. 60% in 3QFY21). No dividend was declared for 3QFY21 – nonetheless, YTD dividend of 4.0 sen (comprising 3 interim dividends) is in line to meet our 5.5 sen full-year target.

QoQ, 3QFY21 CNP of RM7.4m came off 16% despite a flat revenue as: (i) its electrical lighting segment suffered a loss before tax (LBT) of RM0.5m (vs. PBT of RM0.2m in 2QFY21) due to insufficient segmental revenue failing to cover fixed costs stemming from the July lockdowns and (ii) higher group effective tax rate of 26% (vs. 23% in 2QFY21). Note, in 3QFY21, the group operated for only c.1.5 months (from mid-August onwards) at c.60% capacity as July was impacted by lockdowns and there was a temporary shutdown in August when some workers contracted Covid-19. Consequently, the group also incurred additional costs during the quarter as workers had to be quarantined at dedicated hotels earmarked by the government.

YoY, 9MFY21 CNP of RM27.0m surged from a low base of RM0.1m mainly due to stronger steel prices, reduction in competition and the absence of Covid-19 lockdown measures (such as in March 2020) which halted economic activities and capped deliveries in 9MFY20.

100% capacity. Since Oct 2021, Ulicorp has been operating at 100% capacity as their staff vaccination rates have surpassed the required 80% (currently 99% vaccinated).

Flat steel prices (raw material for Ulicorp) have come off since late Oct 2021. Theoretically, this would mean weaker margins in the subsequent quarters as: (i) old raw material inventory which were purchased at higher costs are consumed and (ii) end-products ASPs are repriced lower in tandem with the lower trending material (flat steel) prices. However, given Ulicorp’s dominant position (c.50% market share) within the cable support systems (CSS) space post-pandemic which gives them pricing power; end-product ASPs have held up well despite down-trending flat steel prices.

Maintain FY21-22E earnings estimates. Reiterate OUTPERFORM with unchanged TP of RM1.85 on 10x FY22E PER. Risks to our call include: lower-than-expected sales of CSS products.

Source: Kenanga Research - 17 Nov 2021