PETALING JAYA: Uchi Technologies Bhd is expected to encounter lower sales volumes in the near term, driven by continued weakness in European retail demand.
This sluggish outlook is likely to weigh on the company’s bottom-line performance.
According to Berjaya Research Sdn Bhd, the cautious sentiment may extend into the second half of 2025, as global economic uncertainties persist.
These include reciprocal trade tariffs, geopolitical tensions and rising inflationary pressures, all of which could negatively impact demand and margins.
The research house also highlighted that the stronger ringgit may compress profit margins, as Uchi Technologies’ sales are predominantly denominated in US dollars.
“With the likelihood of a US interest rate cut, the ringgit may continue to strengthen in the coming quarters. In this environment, earnings visibility will likely remain clouded until a more robust recovery in demand materialises,” it said.
Nevertheless, Berjaya Research noted that projected dividend yields of over 8%, backed by a solid net cash position in 2025 and 2026, could provide downside support to the company’s share price.
In terms of performance, Uchi Technologies’ first half of 2025 revenue and core Patami (excluding unrealised forex and derivative impacts) came in line with expectations, representing 46.3% and 46.7% of Berjaya Research’s full-year forecast, respectively.
On a year-on-year basis, revenue for second-quarter 2025 fell 24.2% to RM44.8 million from RM59.1 million, largely due to softer sales in its key European market (-23.8%) and the adverse impact of currency movements.
Consequently, Patami declined 30.3% to RM22.4 million, down from RM32.2 million, as operating margins narrowed to 64.2% from 67% in second-quarter 2024, amid higher raw material and labour costs.
Quarter-on-quarter, revenue dipped slightly by 0.4% to RM44.8 million, impacted by a stronger ringgit and weaker European sales, which offset stronger sales in the Asia-Pacific region.
However, Patami rose 5.0% to RM22.4 million from RM21.4 million, helped by a lower effective tax rate of 22.0%, compared to 23.7% in Q1 2025.
Looking ahead, Berjaya Research is keeping its 2025 and 2026 revenue and Patami forecasts for Uchi Technologies unchanged.
“We maintain our ‘Neutral’ recommendation on Uchi Technologies with a target price of RM2.93, based on a multi-stage dividend discount model using a dividend growth rate of 1% and a required return on equity of 8.4%,” it said.
Despite current challenges, the firm continues to favour Uchi Technologies for its attractive dividend payout, strong balance sheet, and robust profitability, with a Patami margin of 50% in first-half 2025.
Key downside risks include customer concentration, supply chain disruptions, a weakening US dollar, and the potential non-renewal of the company’s pioneer tax status.