ULICORP’s 1QFY24 results met expectations. Its 1QFY24 core net profit surged 1.6x YoY on improved sales and lower input cost. It is poised to benefit from the construction boom with its bread- and-butter cable support systems. We maintain our forecasts but raise our TP by 25% to RM2.38 (from RM1.91). Maintain OUTPERFORM.

Its 1QFY24 core net profit of RM8.5m came in at only 16% of our full- year forecast. However, we deem the results within our expectation as we expect stronger quarters ahead with rising demand for its products on the back of a construction boom coupled with a new powder coating line that will come online by 3QFY24.

YoY, its 1QFY24 revenue grew by 7% on higher contributions from its electric lighting and fittings segment (+27%) and cable support system segment (+4%). Its core net profit surged 1.6x driven by: (i) normalised input cost, having already depleted its high-cost flat steel inventory, and (ii) reduced staff cost following a change in its bonus payout policy.

QoQ, its 1QFY24 core net profit fell 12% due to: (i) lower sales volume (-9%) affected by seasonal festivities (i.e. Chinese New Year) and (ii) higher input costs.

Forecasts. Maintained.

Valuations. However, we raise our TP by 25% to RM2.38 (from RM1.91) as we roll forward our valuation base year to FY25F based on an unchanged 8x PER, in line with the average historical forward PER of the steel product sector. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 4).

Outlook. ULICORP’s earnings prospects are strong, driven by strong demand for its cable support systems on the back of a construction boom, both in the private space (data centres, warehouses, hospital projects, etc) as well as impending public mega projects (on-going and impending such as the East East Rail Link, Johor Bahru-Singapore Rapid Transit System, Bayan Lepas LRT and MRT3). The consolidation in the local cable support system market during the pandemic era (i.e. weak players shutting down permanently) has also led to reduced competition which augurs well for market leader ULICORP.

Investment thesis. We like ULICORP for: (i) a proxy to the construction boom with its cable support systems, (ii) its dominant market position with a share of over 50% in the local cable support system market, and (iii) a strong war chest with a balance sheet in a net cash of RM99m. Maintain OUTPERFORM.

Risks to our call include: (i) volatility in the cost of input cold-rolled coil (CRC), (ii) a slowdown in the construction sector, hurting the demand for cable support systems, and (iii) competition from low-cost producers in the region.

Source: Kenanga Research - 28 May 2024