Highest return on equity over three years: INDUSTRIAL PRODUCTS & SERVICES: Uchi Technologies Bhd - ROE never stops growing

This article first appeared in The Edge Malaysia Weekly, on December 14, 2020 - December 20, 2020.
Highest return on equity over three years: INDUSTRIAL PRODUCTS & SERVICES: Uchi Technologies Bhd - ROE never stops growing
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Prai-based electronic control systems maker Uchi Technologies Bhd walked away with the award for highest return on equity (ROE) over three years for the industrial products and services sector at The Edge Billion Ringgit Club Corporate Awards.

Uchi’s return on shareholders’ equity was 28.9% in the financial year ended Dec 31, 2017 (FY2017), 35.6% in FY2018 and 48.5% in FY2019. Its adjusted weighted ROE over three years stood at 40.7%.

These ratios are significantly higher than its ROE of 21% to 22% in FY2015 and FY2016, which were considerably remarkable then. Such high ROE demonstrated the company’s profitability. According to absolutelystocks.com, Uchi’s rolling 12-month ROE stood at 43.27%.

ROE, which is calculated by dividing net income by shareholders’ equity, is considered the return on net assets. Essentially, the ratio measures how effectively management is using a company’s assets to create profits.

Although Uchi’s shareholders’ fund has shrunk from RM230.66 million in FY2015 to RM162.16 million in FY2019 as a result of a capital repayment of 20 sen per share in March 2018 (see chart), its net earnings per share grew from 12.97 sen to 16.92 sen during this period.

As at June 30 this year, Uchi’s net cash position stood at RM137.9 million. The company has been keeping its promise to distribute at least 70% of net profit as dividend since 2003.

One cannot talk about Uchi’s management effectiveness without mentioning its executive director Ted Kao De-Tsan. The 62-year-old Taiwanese is the major shareholder of Uchi, with a 19.88% equity interest.

Kao founded Uchi Electronic Co Ltd in Taiwan in 1981. Eight years later, he selected Penang as the manufacturing base and founded Uchi Electronic (M) Sdn Bhd and Uchi Optoelectronic (M) Sdn Bhd.

Today, Uchi is primarily an original design manufacturer (ODM) that specialises in the design, research, development and manufacturing of electronic control systems, which includes software development, hardware design and system construction.

The group is an investment holding company with three wholly-owned operating subsidiaries: Uchi Optoelectronic; Uchi Electronic; and Uchi Technologies (Dongguan) Co Ltd.

As the main subsidiary, Uchi Optoelectronic is involved mainly in the design and manufacturing of real-time centralised energy measurement and control systems, high-precision hot fluid temperature control systems, ultra-low temperature and mass sensing control systems, as well as touch screen advance displays, high-precision light measurement equipment and mixed-signal control systems.

Meanwhile, Uchi Electronic and Uchi Dongguan are the assembly arms in Malaysia and China respectively.

Notably, Uchi serves a wide base of European multinational corporations, mainly from Switzerland and Germany.

Its modules are being developed for the global leaders in producing high-end household and commercial appliances, such as fully automated coffee machines as well as laboratory or industrial instruments, including precision weighing scales, centrifuges and deep freezers.

Uchi’s net profit grew 10% to RM75.94 million in FY2019, from RM69 million a year ago. Its revenue expanded from RM139.96 million in FY2018 to RM156.67 million in FY2019.

Unfortunately, owing to weaker demand for its products because of the Covid-19 pandemic, it expects its FY2020 revenue to be in the low double digits, a decline from FY2019. The group is confident, however, that it will remain profitable and maintain a strong balance sheet amid these unprecedented challenges.

In its 2019 annual report, Uchi chairman and senior independent non-executive director Charlie Ong Chye Lee pointed out that the group continued to challenge itself to keep innovating and formulate better solutions that improve efficiency across all aspects and increase overall performance.

“Today, I am happy to report that the group recorded a customer reject rate of 0.11% in 2019, making this the seventh consecutive year we have kept the rate below 0.2%,” he wrote.

Compared with 2018, there was a slight improvement in Uchi’s on-time shipment performance in 2019, Ong highlighted.

“We continued to bear the impact of the US and China trade tensions, which resulted in vendors shifting their production base and affecting our production processes. In view of this, we have implemented additional measures to counteract the delays and better our delivery time in the future,” he said.