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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