Uchi Technologies Bhd (Jan 13, RM1.16)
Maintain buy at RM1.15 with revised target price of RM1.34 (from RM1.55): Uchi is expected to release its 4QFY11 results by end-February, which are likely to fall within our core net profit estimate of RM47.3 million (+2% year-on-year [y-o-y]). Recall that 9MFY11 net profit amounted to RM38.3 million (+12.9% y-o-y) or 81% of our full-year forecast, thereby implying a slightly weaker 4QFY11. This is due to the continued weak consumer sentiment and uncertain global economic environment. Management, however, has guided that FY11 dividend per share (DPS) of 12 sen will likely remain unchanged from FY10, which implies a final DPS of seven sen (implied payout of 95%) after the interim dividend payment of five sen.
Management has guided for a weaker FY12 based on current order flow and judging from the ongoing global economic uncertainty. Consistent with our macro view, however, its management believes that 2HFY12 will be stronger, underpinned by the introduction of new products and a gradual global economic recovery.
Nevertheless, on the whole, its management believes that FY12 revenue is likely to be weaker by 15% in US dollar terms, affected primarily by the weaker demand for its coffee modules. Demand for its biotech equipment remains fairly resilient and is likely to continue to see growth in FY12. (Uchi’s biotech division is estimated to account for 20% of FY11 group revenue). The company is introducing two new products — an encoder and infra-red module — from early 2QFY12, though near-term contribution is unlikely to be meaningful.
Capital expenditure (capex) for FY12 will likely rise to RM35 million from RM12 million for FY11 as Uchi rushes to complete Phase 3 of its plant expansion, next to its current location in Prai, Penang. The plant will be dedicated to R&D and used primarily for reliability testing, cleanroom and offices for customers instead of expansion of new lines. Of more significance, the higher capex in FY12 is unlikely to affect its DPS for FY12 (Uchi’s cash balance remains high at RM143 million or 38 sen per share as at end 3QFY11)
Our earnings forecast is adjusted for the weaker guidance and higher FY12 capex, thereby resulting in a 11% to 14% cut in our FY12/FY13 forecast. We have also trimmed our FY12 DPS forecast to 11 sen from 12 sen (FY13: 12 sen from 13 sen previously). Our target price for Uchi is lowered to RM1.34 (previously RM1.55), based on an unchanged 11 times FY12 earnings per share.
We retain our “buy” rating as our investment thesis for Uchi remains unchanged, hinging on its strong dividend payouts (average of 79% over the past three years), underpinned by its strong free cash flows. The key risk to our recommendation lies in the stock’s low trading liquidity which could increase stock price volatility during a downturn. — Affin IB Research, Jan 13
This article appeared in The Edge Financial Daily, January 16, 2012.
