United U-Li gains 6.37% on better earnings outlook

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KUALA LUMPUR (April 7): Shares of United U-Li Corporation jumped as much as 17 sen or 6.37% to RM2.84 in the morning trades today on better earnings outlook. 
 
As at 10.02am, the counter was up 13 sen or 4.87% to trade at RM2.80, making it the eighth largest gainers across the bourse. 
 
Some 294,600 shares were seen having been traded between RM2.70 and RM2.84. It has a market capitalisation of RM352.44 million. 
 
United U-Li Corp (fundamental: 2.4; valuation: 2) has been trading at the up-trend since June 17 last year, it was trading at a low of 96.8 sen before reaching a high of RM2.84 today. 
 
In a note to client today, Kenanga IB Research said it was convinced that there is still more upside in United U-Li Corp.
 
The firm noted the group has embarked on a capacity expansion program and plans to construct two more new plants with hot dip galvanizing facility on its 9-acre land in Nilai, Negeri Sembilan as all its four plants are running at almost full capacity presently.
 
"Upon completion by end-2015, these new plants will double its current capacity and also cut galvanizing outsourcing costs," the firm noted. 
 
Apart from that, Kenanga said United U-Li has a well-diversified clientele base, hence the risk of a significant slowdown in overall demand is relatively low. 
 
"In fact, we understand that the management has been giving up a number of sizeable orders due to capacity limitation. 
 
"On the local front, it is believed that demand will improve further with implementations of various government infrastructure projects and private sector investments in property, high rise residential and commercial developments," it added. 
 
Kenanga also said approximately 60% of the raw materials used by United U-Li were obtained from Russia, Japan, South Korea, China and Taiwan, hence the underlying subdued steel demand and prices should translate into lower raw material costs to the group. 
 
"Furthermore, with the hot dip galvanising facility, we understand that the Group is able to save some RM3 million to RM5 million outsourcing costs per annum," it added. 
 
On the earnings outlook, Kenanga estimates its revenue and net profit to continue growing by 16.1% and 21.1% to RM200 million and RM28.1 million respectively, in financial year 2015 (FY15).
 
The number is expected to further increase by 15.5% and 30.4% to RM231 million and RM36.7 million in financial year 2016 (FY16). 
 
The main drivers include the 25% and 20% additional capacity in FY15 and FY16 as well as cost saving from hot dip galvanizing process.
 
As such, the firm has a Trading Buy call with a target price of RM3.50 on the counter. 
 
For the financial year 2014 (FY14), United U-Li Corp ended the financial year with a stellar set of financial results with revenue and net profit growing strongly by 12% and 40% to RM172.3 million and RM23.2 million respectively, thanks to higher sales and net margin from cable support systems segment.
 
This division made up 83% of total revenue in FY14.

 

(Notes: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)