Uli Corp to regain prime time profitability in 2021: Kenanga Research

KUALA LUMPUR: United U-Li Corp Bhd (Uli Corp) is poised to regain prime time profitability with fierce competition abatint and construction works on mega projects gradually picking up pace as economies pivot towards a Covid-19 recovery path, Kenanga Research said.

Uli Corp, which is involved in the manufacturing and trading of cable support systems, cable management systems, integrated ceiling systems, building materials and light fittings, has guided that there is an influx of orders as construction activities gradually resume.

For example, Kenanga Research said Singapore, with very low community Covid-19 cases lately, had seen a surge in orders as construction activities normalised.

Besides that, Kenanga said while the current raw mat (cold rolled coil) supply was tight, translating to higher raw material prices for Uli Corp, there was a flipside to it.

“Big cold rolled coil purchasers like Uli Corp are given the priority to buy while small players are side-lined – rendering the smaller players unable to meet orders, face cash flow issues and consequently shutdown.

“Therefore, on the back of the pent up demand for orders and reduction in competition, Uli Corp is able command pricing power and pass down the higher raw mat cost to its end-clients in the foreseeable future,” it said.

Kenanga Research said in a global steel uptrend as witnessed currently, most steel players would see gross profit margins expand as the hike in selling prices was immediate while raw mat price increase was lagging.

“To illustrate our point from a quarterly reporting perspective, the quantum of increase in revenue would be greater than the quantum of increase in COGS (cost of goods sold) as raw mat purchased at a lower price from previous quarters would be accounted for in the existing quarter’s COGS – leading to higher margins,” it said.

Kenanga Research said the three key issues Uli Corp once faced which hampered profitability since financial year 2017 were now behind it.

They included operational hiccups at new hot dip galvanisation unit coupled with lack of end-demand, resulting in loss making unit, stiff competition from new competitors leading to depressed margins and mass hiring of workers in but slowdown in construction works due to government change in financial year 2018 led to elevated costs.

Kenanga Research has upgraded Uli Corp’s financial year 2021 earnings by 40 per cent after incorporating stronger margins which reflect levels similar to the group’s pre-competition years.

It also maintained its “outperform” call on Uli Corp with higher target price of RM1.45.

“After a four-year earnings lull, we anticipate earnings to rebound back strongly in financial year 2021.

“That said, we note that margins could potentially be even better now as there weren’t any in-house galvanising plant within their facilities then – versus one that is operating 24/7 now,” it said.

Source: NST