Uchi Technologies - Profits and DPS Above Expectations Author: kltrader | Publish date: Thu, 25 Feb 2021, 8:59 AM
Another Record Quarter as Both Revenue and Earnings Surge FY20 results grossly above expectations on stronger-than-expected revenue and margins Maintain BUY with a higher TP of RM3.88. Yields at ~5-6% are attractive Revenue and Earnings Surged Further in 4Q20 4Q20 revenue and core profit surged by 33% and 41% qoq respectively, even after the strong previous quarter, which had recovered from order backlogs due to production halts during the Movement Control Order (MCO) in 2Q20. With the strong revenue and hence better operating leverage coupled with favourable revenue mix, EBITDA margin further improved by 2.9ppts qoq. Overall, this has been the strongest quarter ever reported by Uchi, both in terms of revenue and profit, which we believe is being underpinned by strong demand for household appliances spurred by the work-fromhome trend.
2020 Results Above Expectations, DPS Ahead of Expectations Cumulatively, Uchi’s 2020 core profit of RM85m (+10% yoy) came in above expectations, accounting for 120% and 124% of our and the street’s full-year estimates respectively. Revenue in US$ terms had contracted by 1.8% yoy and we believe this was also better than management’s earlier revenue guidance of a single-digit decline. The earnings surprise was largely due to a combination of better-than-expected revenue and EBITDA margin. DPS for the full year amounted to 17 sen (FY19: 16 sen), which was also a positive surprise.
Maintain BUY With a Higher 12-month TP of RM3.88 We update our 2021-22E EPS to incorporate the FY20 financial results and also introduce our 2023E EPS of 21.2sen (+6% yoy). We lift our target price to RM3.88 based on a higher target PE of 21x or +2SD its 5-year historical mean, on 2021E EPS (from RM2.92 based on a PE of 18x or +1SD). While valuations are high relative to historical average, the stock continues to trade at a significant discount to sector PE mean. Given the ample market liquidity and stock’s attractiveness as a high-quality dividend play, we think that stock PE multiples can continue to re-rate. We also like Uchi for its strong relationship with its key customer and how it remains the sole supplier of its coffee modules. Its customer, which manufactures deep freezers used within the vaccine logistics supply chain, could provide a near-term earnings catalysts. Key risks include weaker demand, weaker RM against the US$ and gain/loss of customers.
Biotech could serve as future catalyst in this pandemic era ........................................................
HLIB said one of the products in Uchi’s pioneer status list is the ultra-low temperature and mass sensing control system.
It said this device is designed for the storage of biological materials (such as virus, bacteria, eukaryotic cells, stem cell and blood) mainly used in blood banks, hospitals, epidemic prevention services, research institutes and biomedical facilities.
The coronavirus pandemic achieved in a few weeks what the owners of Folgers and Maxwell House have been trying to do for a decade: get people to brew coffee at home again.
The morning coffee ritual is one of the toughest consumer habits to change, food executives have long said. Once people got used to stopping at Starbucks or Dunkin' on their way to work, they weren't likely to switch things up, the thinking went.
That is, until a pandemic forced millions of people to work from home.
As Americans suddenly changed the way they spent their days and their dollars, a fierce sales battle emerged between cafes, coffee brands and makers of home-brewing machines.
At first, consumers bought whatever coffee they could find as they faced shortages at supermarkets. They got more picky as the pandemic stretched on, improving the quality of their caffeine fix. Many coffee drinkers invested in espresso machines, French presses and pour-over brewers.
Retail coffee sales are up about 10% so far this year compared with a 2% sales increase in many recent years, according to data provided by coffee companies.
Sales of all coffee makers, from espresso machines to Chemex Corp.'s pour-over brewer, are up 28% since the start of the pandemic, according to the market-research firm NPD. ..................................
"Consumers are trying to replicate what they were getting in a cafe at home," said Marty Thompson, president of Nestlé Coffee Partners, a division of Nestlé SA, which makes Nescafe coffee as well as Starbucks-branded packaged coffee. Mr. Thompson said the packaged-coffee industry got about three years' worth of new consumers in seven months during the pandemic.
Italy-based coffee maker Lavazza Group said sales of new brewers signal that people will likely continue making coffee at home even after the pandemic.
"People are getting used to these new habits," said Lavazza's head of its North America business, Davide Riboni. "We are trying to capture this." People's barista skills have improved, he added.
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The current trend and new normal is to work from home. Good coffee is almost basic life standard for high income people in the EU. How could they miss this in their home office? They need to buy one in order to enjoy good coffee at home as they no longer have the access to the one in their office building anymore for at least another year.
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