UCHITEC - U SEE THAT

UCHITEC is a company which manufactures mixed signal microprocessor-based application and system integration products, and trading of complete electronic module[1]. UCHITEC had their subsidiaries in Malaysia (Uchi Optoelectronic (M) Sdn. Bhd & Uchi Electronic (M) Sdn. Bhd.) and another subsidiary in China (Uchi Technologies (Dongguan) Co., Ltd). UCHITEC is majoring in services and products. 

Their services such as product design (transforming product ideas through innovative solutions), construction and tooling design (provide customers the optimized construction and tooling designs), software + micro controller + ASIC solutions (integrating software; with UCHITEC gained their reputation through fully automatic coffee machine or a precision weighing scale), display modules solutions (specialized in LED Dot Matrix Displays and TFT Display Modules Solutions) and manufacturing services (OEM and ODM services)[2]. OEM aka Original Equipment Manufacturing whereby a company is designing and building a product based on its own specifications and then selling the product whereby ODM (Original Design Manufacturing) is designing and building a product as per another company's specifications. UCHITEC is an ODM and OEM company which can fit into the needs of their customers.

UCHITEC's products can be divided to 2 portions, which are Art of Living Group and Bio-Tech groups. UCHITEC is using IT to build a ubiquitous information society, such as a coffee machine. Next will be the Bio-Tech group, whereby commercializing health care services and biotechnology to enrich people's lives. The products of electrical and electronic appliances such as weighing scales, high end household appliances, coffee machine etc. Basically, UCHITEC draws on the wealth of experience and technology to contribute to corporate innovation.

UCHITEC serves a wide base of multi national companies, located primarily in Europe with Switzerland and Germany as major. I think their business model is quite attractive because of the ODM whereby they can fit into the needs of the customers with their expertise and experience that they have.

1) Fundamental Analysis:

UCHITEC Net Cash

The revenue and net profit is healthy, with averagely 45% net profit margin. The revenue and net profit stays stagnant for the time being, due to not much surprises to its business model. UCHITEC is a net cash company with RM157,758k in their bank. The net cash per share is around RM0.42. Again to stress out, net cash is important during economy downtime. 

UCHITEC budgeted 7% of revenue in R&D in enhancing software and hardware. They are also continuously enhancing their existing products, developing lead-edge products and adopting new processes and applications in line with industry demands. According to Mr Chairman, Charlie Ong, the products will be exempted from income tax for a period of 5 years, beginning from the day of production, which in return will lift up the net profit. According to Managing Director, Mr Ted Kao, UCHITEC is more concentrated in Europe with nearly 100% of revenue derived from there. They had been exhibiting and promoting their products at international level, such as Taiwan, Hong Kong and Germany. Since their revenue is 100% billed in USD, foreign currency fluctuation poses a risk factor. But, they counter back the exposure by entering into foreign currency forward contracts[3]. Their revenue from major products is touch screen, which increased 22% from 2013. As for geographical site, Europe and Asia Pacific increased 4% and 39% respectively while US market dropped 8%. 

The thing that really caught my attention is when i read through their quarterly results, which mention that the demand for the products in the normal course of event is seasonal with demand peaking during the third quarter of the year. On future prospect, the management expects revenue in USD to remain flat. Okay, fair enough. The revenue in USD to remain flat around RM 26 mil. Compared to Q2 2014, net profit increased by 17.43% due to increase in demand for their products and services and the appreciation of USD against RM[4].

Let's do a simple calculation. We assume that the net profit for Q3 and Q4 will be the same as Q1 and Q2, totaling up will be RM45,066k. When we annualised the EPS, it will be 01206. In order to find the Target Price, we use the current PE to multiply with the EPS. 

Current PE = 15.50     

Annualized EPS = 0.1206

Target Price (TP) = 15.50 x 0.1206 = 1.87 (let's round it off to 1.90)

Summarized List of Shareholders from July to 4 Nov 2015

Next, we track the movements in director's interest and also those with the intention to deal during closed period from July to November 2015. And please forgive me as my report of this is not comprehensive, but i manage to gather important points. Most of the directors/shareholders acquire their shares through ESOS (Employee Share Option Scheme), and they sell some portion[5].  

Notice the highlighted sentences.

Next, to my surprise, for the first time, i saw such a straight forward description. *The person has notified of her intention to deal during the closed period in connection with the expected release of 3rd quarter results ended 30 September 2015*. I did not only see such description in one person. Those i highlighted the cells with orange, all of them had the same description. When one people buying the shares is normal, but, when we have a crowd starting to buy the shares for whatsoever reason, then it becomes fishy... Maybe the Q3 result gonna be good? Remember the management mentioned that the revenue will be flat, and if the net profit being converted to RM, i think that is where we can watch the fireworks.

Did U CHI TEC? Sounds legit? 

2) Technical Analysis:

Let's look at the chart. There is a big drop from June to July due to Amanah Saham selling their shares. Now their percentage only left 5.21% which is equals to 20 million shares. Then followed by the downfall of economy during August, which again melts the chart to around 1.40. Soon after that, it slowly climbs up and complete the double bottom, a reversal signal to go up. Lately on 2 November, there is a huge volume which straight shoot up, bring the candle to a bit overbought situation (RSI >70% and BB overheated). Therefore, now the price is retraced. For me, it is normal as long as it did not break the support at 1.64. Let's hope for the T+3 and it straight raises over its resistance of 1.73 and continue to march to new high.

Summary: 

UCHITEC definitely had a solid foundation and lately there are so many buyers...

- Net cash company with business being promoted and exhibited in Germany, Hong Kong and Taiwan.
- Healthy results which EPS annualized to be 0.1206 with Target Price around 1.90.
- Management mentions that the revenue will be flat. But once converted to RM, it will produce firecrackers as the company benefits from strengthening USD.
- Seasonal  or cyclical factors with higher demands in Q3.
- Q3 result to be announced in this month, November expecting good results.
- Insiders buying the shares between 1.60 to 1.70 lately, announcements from Bursa Malaysia.
- Retraced now after a high spike indicated by Bollinger Band and RSI.

You see that? Your call...

Let's Ride the Wind and Gainvest

Gainvestor 10sai

5 November 2015

2.25am

Sources:

[1]: http://klse.i3investor.com/servlets/stk/7100.jsp
[2]: http://www.uchi.net/index.php

[3]: Annual Report 2015
[4]: Q2 2015 Report

[5]:http://www.bursamalaysia.com/market/listed-companies/company-announcements/#/?category=all&sub_category=all&alphabetical=All&company=7100&page=1