Is Uchi Technologies Bhd The Hidden Gem You Are Looking For?

Uchi Technologies Bhd (Uchi) is an investment holding company that has three wholly-owned subsidiaries which specialise in the research and design (R&D), development and manufacturing of electronic control systems. They include:

– Real-time centralised energy measurement and control system
– High precision hot fluid temperature control system

– Ultra-low temperature & mass sensing control system for biochem equipment

– Touch screen advance display

– High precision light measurement (optoelectronic) equipments

– Mixed-signal control system for centrifuge / laboratory equipments

– Mixed-signal microprocessor based application

– System integration products and electronic modules

As of 30 April 2019, Uchi is worth RM 1.28 billion in market capitalisation. Here, I’ll cover its latest financial results and valuation figures. Thus, here are 12 main things to know about Uchi before you invest.

  • Plant Utilisation
    Uchi has two plants located in Malaysia and China where their built-ups are 148,1000 sq. ft. and 161,100 sq. ft. respectively. The two plants had been operating at 80% of its total capacity for the last 3 years. Uchi had recorded a customer rejection rate of 0.12% in 2018. Uchi has recorded below 0.20% in customer rejection rate for the last 5 years.

  • Breakdown in Revenue 2018
    In 2018, Uchi has exported 94% of its products to Switzerland, Portugal, and Germany. The remaining 6% of its products were sold to customers in China, the United States, and other nations.

    The following is a breakdown of Uchi’s revenues in 2018:

No.Geographical RevenuesRevenue 2018 (%)
5The United States of America1%
Uchi’s Total Revenues100%

Source: Uchi’s Annual Report 2018

  • Group Revenue
    Uchi has achieved a CAGR of 8.30% in group revenues, increasing from RM 94.0 million in 2013 to RM 140.0 million in 2018. The increase was attributable to higher orders from 1 major customer. In 2018, one customer accounted for 71% of Uchi’s revenues in 2018.

Source: Uchi’s Annual Reports

  • Shareholders’ Earnings
    In 2018, Uchi has reported a small 2.12% dip in shareholders’ earnings to RM 69.0 million from RM 70.5 million in 2017. This is due to a fall in US Dollar against Ringgit in 2018 and higher income tax payments as a result of the expiration of Uchi’s pioneer status on 31 December 2017.

Source: Uchi’s Annual Reports

  • Return on Equity (ROE)
    In 2018, Uchi has recorded ROE of 45.75%, which is higher than its ROE generated 20% – 30% a year from 2013 to 2017. It is caused by Uchi’s undertaking of a capital repayment exercise in 2018, where Uchi repaid as much as RM 89.7 million in capital to its shareholders. It caused a fall in its shareholders’ equity to RM 150.8 million in 2018 from as much as RM 236.3 million in 2017.

    Figures in RM Million unless stated otherwise
Equity 193.0230.7251.7236.3150.8
ROE (%)20.8%23.8%22.4%29.8%45.8%

Source: Uchi’s Annual Reports

  • Cash Flow Management
    From 2013 to 2018, Uchi generated RM 330.7 million in operating cash flows and RM 29.5 million in interest from its short-term deposits. Out of which, Uchi has spent:

    – RM 26.3 million in net capital expenditures (CAPEX).
    – RM 23.9 million in net capital repayment.
    – RM 332.1 million in dividend payments to its existing shareholders.

    As of 31 December 2018, Uchi has cash reserves of RM 113.7 million. It has proven that Uchi is a cash-generating business and does not to rely on raise debt and equity to fund its business operations or to reward its shareholders with sustainable dividend payments.

Source: Uchi’s Annual Reports

  • Balance Sheet Strength
    As of 31 December 2018, Uchi has no debt and shareholders’ equity of RM 150.8 million. Thus, it has zero gearing ratio.

    Besides, Uchi has current assets amounting to RM 153.5 million and as well as current liabilities of RM 66.9 million. Thus, it has a current ratio of 2.30.

  • Targets for 2019
    For 2019, Uchi has budgeted RM 5 million in CAPEX where it would be used for maintenance and facility replacements. It would invest a total of 7% of its revenues into R&D activities. Also, Uchi aims to keep a low customer rejection rate of below 0.15% in 2019.

  • Who Owns Uchi?
    As of 20 March 2019, the five biggest shareholders and their amount of direct shareholdings are as followed:

    – Eastbow International Ltd (Eastbow): 18.56%
    – Ironbridge Worldwide Ltd (Ironbridge): 7.87%
    – Public Islamic Opportunities Fund: 3.58%
    – Asia Oceania Dividend Yield Stock Mother Fund: 2.65%
    – Bekal Sama Sdn Bhd: 2.23%

    Ted Kao is a substantial shareholder via his interest in Eastbow. Edward Kao, Ted’s brother is a substantial shareholder of Uchi via his interest in Ironbridge.

    Both Ted and Edward are appointed as Executive Directors of Uchi.

  • P/E Ratio
    As of 30 April 2019, Uchi is trading at RM 2.84 per share. In 2018, Uchi had reported to make RM 0.154 in earnings per share (EPS). Hence, its current P/E Ratio is 18.44, higher than its 6-Year Average of 14.43.

  • P/B Ratio
    As of 31 December 2018, Uchi has net assets of RM 0.335 a share, a fall from RM 0.526 a share in 2017. The fall is due to a capital repayment in 2018. Thus, its current P/B Ratio is 8.48, the highest in 6 years.

  • Dividend Yields
    In 2018, Uchi had paid out RM 0.14 in dividends per share (DPS). Thus, if it is able to maintain its DPS at RM 0.14 in subsequent years to come, its current dividend yield is 4.93% per annum, which is below its 6-year average of 6.65% per annum.

VIA’s Verdict

Overall, Uchi has delivered stable financial results to its existing shareholders. It has caused a lift in its share price, leading to growth in market capitalisation for the last 5 years, up from RM 464.4 million in 2013 to RM 1.28 billion today.

Source: Google Finance

Based on current valuations, Uchi is trading at above-average P/E and P/B and is offering below average dividend yields.

So, would you invest in Uchi at RM 2.84 a share today?

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