FY21 CNP of RM44.1m exceeded expectations due to stronger-than-expected revenue and margins from their Cable Support Systems (CSS) segment which saw strong demand upon the easing of lockdown measures during the quarter. No dividend was declared alongside earnings, however, pending final dividend in March 2021 which should be in line to meet our 5.5 sen full-year target (YTD declared 4.0 sen). In view of the sustained CSS demand, raw material shortage, and the lack of competitors post pandemic, we expect Ulicorp to benefit greatly from current landscape. Thus, increase FY22E earnings by 23% to RM50m. Consequently, we reiterate OP with higher TP of RM2.30 (from RM1.85) on 10x FY22E PER.

Record high quarter and year. 4QFY21 CNP of RM17.1m brought FY21 CNP to RM44.1m – above our full-year estimate at 107%. The outperformance stemmed from stronger-than-expected revenue and margins from their Cable Support Systems segment which saw strong demand upon the easing of lockdown measures during the quarter.

Pending final dividend. Meanwhile, no dividends were declared alongside 4QFY21 earnings announcement. That said, management guides that a fourth interim dividend will be declared next month in March 2021. Hence, YTD dividend of 4.0 sen (comprising three interim dividends) is in line to meet our 5.5 sen full-year target.

QoQ, 4QFY21 CNP of RM17.1m surged 116% on higher revenue (+75%) as operating utilisation was at 100% vs. previous quarters of only c.60%. Recall that the group only operated for 1.5 months (out of 3 months) in 3QFY21 as they were impacted by lockdowns and a temporary shutdown due to Covid-19 infections among the workers.

YoY, FY21 CNP of RM44.0m leapt 12.5x from a low base of RM3.5m mainly due to the surge in steel prices, reduction in competition and the absence of strict Covid-19 lockdown measures (such as the one in March 2020) which halted economic activities and capped deliveries in FY20.

Global flat steel prices (raw material for Ulicorp) have come off since late Oct 2021 and have plateaued since. Theoretically, this would mean weaker margins in the subsequent quarters as: (i) old raw material inventory which were purchased at higher costs was consumed, and (ii) end-products ASPs are repriced lower in tandem with the lower trending material (flat steel) prices. However, given shortage of: (i) labour and (ii) local flat steel supply alongside Ulicorp’s dominant position (c.50% market share) within the cable support systems space post-pandemic - which gives them pricing power; Ulicorp did not decrease their end-product ASPs despite down-trending flat steel prices. Note, only a handful of CSS competitors are left now and due to their weak cash position post pandemic, they are not able to secure priority for raw material supply.

Order-book. Current order-book stands healthily at c.RM200m (Singapore: c.RM100m, Malaysia: RM80-90m while other markets such as Myanmar and Bangladesh make up c.RM20-30m) to be delivered in the next six months. Given that current demand far outstrips supply, Ulicorp gets to select good paymasters and avoid the bad ones.

Increase FY22E earnings by 23%. In view of the sustained demand for CSS amidst the lack of competitors - which would support end-ASPs, we foresee stronger margins and revenue for Ulicorp. Thus, we increase our FY22E earnings by 23% to RM50m, and we also introduce FY23E earnings of RM53.7m (+7% YoY).

Reiterate OUTPERFORM with higher TP of RM2.30 (from RM1.85) on unchanged10x FY22E PER. Risks to our call include: lower-than expected sales of CSS products.

Source: Kenanga Research - 25 Feb 2022