PETALING JAYA: United U-Li Corp Bhd
’s near-term earnings prospects remain strong, underpinned by the boom in construction activities.
There is overwhelming demand for its cable support systems in the private space, which include data centres, warehouses and hospital projects.
Opportunities are also present in the form of impending public-backed mega projects.
These include projects such as the East Coast Rail Link, the Johor Baru-Singapore Rapid Transit System, the Bayan Lepas light rail transit and the mass rapid transit three or MRT3, said Kenanga Research.
It said the consolidation in the local cable support system market during the Covid-19 pandemic era, with weak players shutting down permanently, has also led to reduced competition that augurs well for market leader, United U-Li Corp.
For the third quarter ended Sept 30, 2023, United U-Li Corp’s net profit rose to RM11.35mil from RM9.77mil in the previous corresponding period, while revenue stood at RM69.49mil, compared with RM62.29mil a year earlier.
Basic earnings per share stood at 5.21 sen versus 4.49 sen previously.
For the nine-month period ended Sept 30, 2023, the company’s net profit improved to RM31.69mil from RM29.06mil in the previous corresponding period, while revenue dipped to RM192.67mil from RM193.77mil previously.
The company’s nine-month financial year 2023 (FY23) results, however, missed Kenanga Research’s expectations due to a tactical move in the third quarter to gain market share in the housing project space at the expense of margins.
Kenanga Research cut its FY23 net profit forecast for the company by 10%, but kept its FY24 numbers.
It has an “outperform’’ call on the stock at a target price of RM2.18 a share.
The research house likes United U-Li Corp as a reopening play, given the recovery in demand for its cable support system products that are widely used in buildings and infrastructure.
This is further backed by the company’s dominant market position with a market share of over 50% in the local cable support systems space, as well as its net cash position of RM99mil that translates to a strong war chest and allows it to pay attractive dividends.
However, the risks to the call include volatility in the cost of input cold-rolled coil, a slowdown in the global economy including the transportation and manufacturing sectors, weak demand for cable support systems and intensifying competition from low-cost producers in the region.
In its notes on its third-quarter results, United U-Li Corp noted that the local construction industry is forecast to grow further, in line with the government’s focus on completing infrastructure, industrial and energy projects.
“Under these positive circumstances, the group believes that the domestic and international markets for cable support systems and electrical lighting and fittings products are expected to improve.
“Nevertheless, the group will continue to exercise caution in all its business dealings as future local and global market conditions remain uncertain,” it said.
The company added that it is taking cognisance of new measures to enhance its operations and improve its cash flow position. The group also optimises its revenue stream by expanding its customer base as downstream players start to replenish their inventories.
