• Integrated facilities with higher capacity

• Export markets to boost sales

• Undisrupted earnings growth for the past four years

• Initiate with BUY and TP of RM4.88

Business Overview:

United U-LI Corporation Bhd (U-LI) manufactures cable support systems as well as electrical lighting and fitting systems. Its products are used in various sectors including construction, telecommunication, power, water works, transportation and oil and gas. The company was established in 1978 and was listed on Bursa in 2002.

Investment Theses: 1. Integrated facilities with higher capacity. U-LI operates four plants in Seri Kembangan, Ipoh and Nilai. Its new plant in Nilai can potentially double the group’s total production capacity to between 50,000 and 60,000 tonnes per annum by 2018 as it installs the machineries progressively.

2. Export markets to boost sales further. Exports currently make up 20% of its sales but management targets to improve that to at least 30% in the next two years. Countries which the Company are aiming for export market include Australia and some of the Southeast Asian countries like Myanmar.

3. Undisrupted earnings growth for the past four years. The Company’s net profit has increased by 87.6% from FY13-FY16. Note that its gross profit margin improved from 35.3% to 40.9% over these periods. That is also premised on FY13-FY16 revenue, which has jumped by 30% over the period. The growth in sales shows robust demand for U-LI’s products. We expect the demand to remain strong in view of the booming construction activities.

4. Net cash and decent dividend payout. U-LI was in a net cash position for the past six years. The dividend payout from the company ranged from 23% to 63% during the period. We expect DPS of 12 sen in both FY17F and FY18F given the company’s strong operating cashflow.

Initiate with BUY and TP of RM4.88. The TP of RM4.88 is derived from 15x PE on FY18F EPS of 32.51 sen. The PER of 15x is in-line with U-LI’s 5-year historical mean PE. There are no other listed direct competitors on Bursa. We like U-LI for its growth potential from both local and overseas markets, net cash position, strong cash flow and decent dividends.

Source: MIDF Research - 30 Jun 2017