United U-Li Corporation Bhd’s (United U-Li) 9MFY23 results missed our expectation due to a tactical move in 3Q to gain market share in the housing project space at the expense of margins.
“Its near-term earnings prospects remain strong underpinned by a construction boom locally,” Kenanga Research said in its Results Note today (Nov 22).
The research house cuts its FY23F net profit by 10% to reflect a lower ASP for its cable support systems.
However, it keeps its OUTPERFORM call, FY24F numbers, and TP of RM2.18 based on 8x FY24F PER – in line with the average historical forward PER of the steel product sector, with no adjustment to its TP based on 3-star ESG rating.
Kenanga said the group’s 9MFY23 core net profit of RM30.5m missed its expectation, coming in at only 60% of its full-year forecast.
“The variance against our forecast came largely from a tactical move in 3Q to gain market share in the housing project space at the expense of margins,” it said.
Year-on-Year (YoY), its 9MFY23 revenue fell marginally by 1% weighed down by a lower ASP for its cable support systems, down by 2% YoY.
“However, its net profit jumped 7%, driven by a lower cost of input cold-rolled coil and increased interest incomes,” it said.
The research house said the earning prospects for the group, which is involved in cable support and management systems, are strong, driven by overwhelming demand for its cable support systems as well as impending public mega projects.
The mega projects include ongoing and impending such as the East East Rail Link, Johor Baru-Singapore Rapid Transit System, Bayan Lepas LRT and MRT3.
“The consolidation in the local cable support system market during the pandemic era has also led to reduced competition which augurs well for market leader United U-Li,” it said.
“We like the group for it being a re-opening play given the recovery in demand for its cable support system products, its dominant market
position and its net cash position of RM99 million.”
The risks to Kenanga’s call include volatility in the cost of input CRC, a slowdown in the global economy and intensifying competition from low-cost producers in the region.
