In a filing with Bursa Malaysia, Uchitec said the proposed capital repayment was to reward the shareholders of Uchitec for their continuous support by returning excess cash after taking into consideration the current financial standing (including its cash and cash equivalents, reserves and zero gearing), future financial obligations and operational requirements.(Filepic)
KUALA LUMPUR: CIMB Equities Research expects stronger earnings recovery in FY19F driven by new power management products and lower tax rate.
It said on Tuesday the stock fell 25% in 2018 due to an expected decline in FY18F net profit.
“Upgrade to Add from Hold for its attractive yields, with a lower RM2.70 TP,” it said.
CIMB Research met with Uchi’s management recently for an update on the group’s operations and prospects for 2019.
Following the meeting, the research house was optimistic that Uchi will deliver a stronger earnings rebound in FY19F, driven by the commercialisation of new projects and a lower effective tax rate.
“However, the group indicated that its strategy to raise biotech revenue contribution to the group from 20% in FY17 to 50% over the next five years will be delayed due to potential growth from new power management devices targeting Internet-of-Things (IoT) applications,” it said.
CIMB Research expects FY18F EPS to drop by 10% on-year partly due to unfavorable forex movement and higher effective tax rate due to the expiry of tax pioneer status in December 2017.
To recap, 9M18 core net profit fell by 7.4% on-year, in spite of an 8.4% on-year US$ sales growth.
“Nevertheless, we expect Uchi to deliver stronger earnings recovery in FY19F driven by new contributions from the IoT segment, resilient growth from Art-of-Living (AL) segment and a lower effective tax rate due to the higher mix of new products portfolio.
“The group is expecting a mid-single digit US$ sales growth for the AL segment in FY19F driven by robust demand from the retail segment in Europe and new market expansion such as in North America.
“Meanwhile, the group’s capacity utilisation is hovering around 80%; it does not plan to invest in new capacity, but will instead increase automation to boost efficiency,” it said.
CIMB Research cited he group had allocated RM10mil capex in FY18F partially to fund the acquisition of vision inspection equipment.
“We raise our FY19-20F EPS forecasts by 3%-6% to account for potentially higher sales from new power management chip and a lower effective tax rate. We expect the new IoT business to contribute about 10-15% of the group’s revenue in FY19-20F,” it said.
To recap, the stock fell 25% in 2018 mainly due to an expected decline in FY18F earnings Following the appreciation of the ringgit vs. US$.
“We upgrade Uchi to an Add with a lower RM2.70 TP, based on a lower 14.4 times CY20F P/E, 10% discount to target sector P/E of 16 times on weak industry sentiment and liquidity issue (vs. 17.6 times previously).
“Uchi offers attractive FY19-20F yields of 6.7%-7.1%, supported by free cash generation and no borrowings. Delays in IoT product launches and a stronger ringgit vs. US$ are key downside risks,” it said.
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