United U-Li Corporation (ULICORP) reported disappointing results for the first half of FY24, with its core net profit falling by 4% year-on-year. The decrease was attributed to higher-cost projects despite strong plant utilisation in its cable support system segment. The company's core net profit for 1HFY24 totalled RM16.6 million, accounting for just 32% of the full-year forecast. Analysts noted that this shortfall was primarily due to weaker-than-expected demand for ULICORP's products.
In response to the current results, analysts at Kenanga have trimmed their earnings forecasts for ULICORP. The FY24F earnings estimate has been reduced by 21%, and the FY25F earnings forecast has been cut by 3%. Consequently, the target price has been adjusted downwards by 3% to RM2.30, from RM2.38. Despite this, the OUTPERFORM call remains intact, reflecting confidence in the company's long-term prospects.
The revenue for 1HFY24 saw a modest decline of 1% year-on-year, largely due to a 3% drop in the cable support system segment. Although the segment operated at 90% capacity, it was unable to fully compensate for the reduced margins from completed lower-margin projects. On a quarter-on-quarter basis, the core net profit fell by 4% in 2QFY24, mirroring the year-on-year decline due to similar factors.
Looking ahead, ULICORP's outlook remains optimistic. The company is well-positioned to benefit from the anticipated construction boom, driven by both private sector projects (such as data centres, warehouses, and hospitals) and major public initiatives (including the East Coast Rail Link, Johor Bahru-Singapore Rapid Transit System, Bayan Lepas LRT, and MRT3). The consolidation within the local cable support system market during the pandemic has reduced competition, favouring ULICORP, which holds a dominant market position with over 50% share in the local market.
Additionally, ULICORP's strong balance sheet, with a net cash position of RM99 million, positions it well for future growth. The company's new capacity expansions expected to come onstream from the end of FY24 are anticipated to drive further demand for its products.
