UCHITEC (7100) Stock Analysis – Part 1
Its that time
again where we will be analysing a stock in depth and talking about
their future growth prospects. This 1 stock that I came across where I
was working, going through router configurations and then I encountered a
problem with the router I was configuring and found out that one of the
modules that was inserted to the router was faulty so I searched online
for the ports module and came across UCHITEC so here comes my
curiosity, thus today we will analyse UCHITEC which has sparked my
curiosity. Though it may not be related to my work but thanks to google, they made my brain work again!!
UCHITEC is primarily involved in Original Design Manufacturing (ODM),
specializing in designing electronic control system. UCHITEC designs and
develops electronic control modules in-house and also manufactures and
assembles components into semi finished parts / control modules which
its customers will use it to insert into their finished products which
includes Art-of-living (encompassing household and professional
appliances), Biotech (for bio-technology product applications, such as
high-precision weighing scales, pipettes and deep freezers) and Others.
They also develop software programming, hardware design and system
construction of these ODM products. Their goods are mainly sold in
Europe which resulted in more than 94% of their total sales, other
countries that they sell their goods to is also US, China, Japan and
India. But is trade war a factor in this situation? We shall further
analyse this.
UCHITEC has three subsidiaries. Uchi Optoelectronic (M) Sdn Bhd (UOM)
which is their main research & development (R&D) and
manufacturing facility that operates UCHITEC’s manufacturing base in
Prai. The other 2 subsidiaries are Uchi Electronic (M) Sdn Bhd (UEM) and
Uchi Technologies (Dongguan) Co. Ltd (Uchi DG) which are set up as the
assembly facilities for their products. UEM operates in Prai while Uchi
DG operates in Dongguan City, China.
Financial Highlights – 10 Years CAGR
- Revenue + 5.95%
- Profit Before Tax + 11.28%
- Net Profit + 11.00%
- Dividend + 12.18%
- Net profit Margin + 4.76%
- Return on Equity + 11.87%
UCHITEC has proposed share buyback of 10% (On April 10, 2019, the
Company announced that UCHITEC is proposing to seek its shareholders’
approval at the AGM of UCHITEC to be convened in 2019). Share buyback is
mostly good for the company but for this case they will have lesser
cash to give in dividend or they might just give more than 100% of their
dividend payout ratio as according to their Group Dividend Policy, a
minimum of 70% of our net profit has been allocated as dividend since
2003. UCHITEC has been increasing their dividends payout yearly, but
this is a tech company, shouldn’t they use their cash for more capital
expenditure (CAPEX)?
Well looking at their CAGR, for the past 10 years their net profit is
still growing at a 2 digit mark which is 11% CAGR and a 5 years CAGR of
14.53%, this alone is actually very good considering they are paying out
most of their cash in dividend. This is the first tech company I came
across that is giving lots of dividend and still able to expand their
company at a rate of more than 10%.
UCHITEC isnt affected by the trade war by tariffs but nonetheless it is
affected in the global shortage of multi-layer ceramic capacitor (MLCC)
components and labour shortages caused a delay in the group’s on-time
shipment performance. Another thing that affects the profitability of
this company is the currency between USD and MYR as they are dealing
with overseas market and they have also mentioned it in their latest
annual report.
“the appreciation of RM against the USD compared with the year before, a
fluctuating foreign exchange and tax payables for taxable products
during a transitional period before the new Pioneer Status products
kicked in also affected us adversely”
Total Director’s shareholdings in this company is around 28% which is
good enough to know that their interest is aligned with their
shareholders. Also with their share buyback the total number of
outstanding shares should be decreasing making the EPS higher which is
good for their shareholders in the future.
In our part 2 we will be discussing more on their financials,
especially their financial sheets and financial ratios. We will also be
talking about their risks and things that affects the group’s
profitability more in depth.
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We will be going for the event as well, come meet us there and learn together!!
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