United U-Li kick-starts RM100 million expansion plan to meet rising demand - MIDA | Malaysian Investment Development Authority
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United U-Li kick-starts RM100 million expansion plan to meet rising demand

United U-Li kick-starts RM100 million expansion plan to meet rising demand

20 Jun 2023

HAVING passed on big contracts in the recent past because of production constraints, cable support system provider United U-Li Corp Bhd is now embarking on an expansion plan to develop new manufacturing facilities in Nilai, Negeri Sembilan, which will boost its output by 50%.

Some RM100 million has been allocated for the move, of which half is from bank borrowings and the other half internally funded, given that it had RM120.23 million in cash as at end-March 2023.

The group had held back on its expansion plan in the past because of soaring construction costs, but increasing demand for its products has enabled it to now proceed with its strategy of growing organically and kick-starting the construction of a new plant in two phases on its 20-acre land. A warehouse and hostels will also be built on the site.

In an interview with The Edge, United U-Li managing director and CEO Tan Sri James Lee Yoon Wah says upon completion in 2025, the new plant is expected to boost production capacity by 50%. “We even had to let go of some big orders because of space and production constraints,” Yoon Wah, 63, says. Construction work for Phase 1 will commence in 3Q and is expected to be completed by 1Q2024. “This will increase our production capacity by 25% to 30%,” he adds, noting that it is also in tandem with the group’s target to grow its overseas contribution to more than a third of revenue.

In FY2022, overseas sales accounted for 23.59% of total revenue, versus 22.17% in FY2021. United U-Li supplies cable support products to a wide range of industries, including construction as well as power and water treatment plants, offering products such as cable trunking, cable tray, cable ladder, wire basket and floor trunking.

Operating from five manufacturing sites in Seri Kembangan, Balakong and Taming Jaya in Selangor as well as Ipoh, Perak, and Nilai, Negeri Sembilan, United U-Li’s plant utilisation rate is running at more than 90%.

Yoon Wah says the company, which has more than 1,000 active customers, has been receiving many orders from time to time apart from the big contracts. Notable ongoing awards include those linked to the mass rapid transit (MRT) and light rail transit (LRT), amounting to RM30 million. Then there are the major contracts from Singapore worth S$15 million (RM51.4 million).

Notwithstanding the robust demand for its products, United U-Li turned in a lacklustre performance for the first quarter ended March 31 (1QFY2023), prompting Kenanga Research to downgrade its stock to “market perform” from “outperform”, with a lower target price of RM1.15, from RM1.36.

“Its latest results show that its recovery from the pandemic has been inconsistent and it is struggling to pass on higher costs to end-customers. We cut our FY2023 and FY2024 earnings forecasts by 22% and 19% [respectively],” the research house said in a May 24 note.

United U-Li’s 1QFY2023 net profit contracted 65.3% to RM4.19 million, from RM12.08 million a year ago, following a 10.9% drop in FY2022 net profit to RM39.27 million, from RM44.06 million in FY2021, owing to lower profit margins.

Giving the assurance that better profit will be achieved in coming quarters, Yoon Wah explains that lower earnings in 1QFY2023 were due to seasonal factors such as the festive season and employee bonuses.

He maintains that the group has been able to pass on higher costs to its customers, and that labour costs are still manageable. Still, Kenanga Research says the group’s margins could see a compression, as the revised Labour Act will result in higher staff costs. United U-Li, which has more than 800 employees, has been attempting to automate more and its automation rate has improved to 70%.

The group’s product selling prices are highly correlated to the movement of global steel prices, thus the ability to pass on costs is key.

Executive director Tan Sri Lee Yoon Kong — Yoon Wah’s brother — says steel prices have bottomed out and should rebound in the second half of the year. “Take, for example, hot-rolled steel. It’s trading around US$620 per tonne, and we think it’s almost at the bottom already. It touched a high of US$1,000 two years ago.

“Anything below US$600 would result in steel mills losing money, so they have to control it at US$600.”

On average, the group has four months of steel inventory to ensure that there is no disruption to its business operation. At last Friday’s closing price of RM1.10, United U-Li’s market value was RM239.6 million. Its shares have slipped 20.3% from a high of RM1.38 in October 2022 and is trading at a forward 12-month price-earnings ratio of 8.7 times.

Yoon Wah and Yoon Kong are co-founders of the company, holding direct stakes of 2.98% and 2.66% respectively. Both also own an indirect stake of 37.19% in the group via Pearl Deal (M) Sdn Bhd.

United U-Li paid a five sen dividend in FY2022 against four sen in FY2021. The dividend payout is expected to increase in FY2023 on expectations of better revenue and earnings.

With RM21.8 million in gross borrowings, its net cash stood at RM102 million as at end-March 2023. 

Source: The Edge Malaysia