Kenanga Research raises United U-Li target price to RM1.45


LRT 3 construction along the NKVE

KUALA LUMPUR: Kenanga Investment Bank Research has raised the target price of United U-Li Corporation Bhd from 85 sen to RM1.45 while maintaining its Outperform outlook.

The research house said on Tuesday after a meeting with its management recently, it believes Uli Corp is expected to do well as the fierce competition since FY17 has abated while mega construction projects are gradually picking up pace.

“Upgrade FY21E earnings by 40% after imputing stronger margins which mimics pre-competition years, ” it said.

Uli Corp’s 83 ongoing projects, all secured this year, will sustain short term revenue, the research house said. “Among them are the MRT2, LRT3, new glove factories, Singapore MRT, PNB118, TRX etc, ” it said.

Management guided that there is an influx of orders as construction activities gradually resume, it said.

For example, Singapore which has seen very low community Covid-19 cases, has seen a surge in orders as construction activities normalises.

While the current raw material (cold rolled coil) supply is tight, translating to higher raw material prices for Uli Corp, the research house points out there is a flipside to it.

Big cold rolled coil purchasers like Ulicorp are given the priority to buy and it can command pricing power and pass down the higher raw material cost to its end-clients in the foreseeable future.

In a global steel uptrend as witnessed currently, most steel players will see gross profit margins expand as the hike in selling prices is immediate while raw material price increase is lagging.

Kenanga Research also pointed out the three key issues which hampered Ulicorp’s profitability since FY17 are now behind the group.

These include (i) operational hiccups at new hot dip galvanisation unit coupled with lack of end-demand, (ii) stiff competition from new competitors in FY17 leading to depressed margins, and (iii) mass hiring of workers in FY17 (over 300 workers) but slowdown in construction works due to government change in FY18 led to elevated costs.

On an upbeat note, the research house said mega projects lined up for the next 10 years such as ECRL, MRT3, HSR, RTS (in Malaysia) and Singapore MRT (Thomson, Eastern Region, Circle, Jurong Region and Cross Island line) will provide earnings sustainability and growth for the foreseeable future.

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