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This article first appeared in The Edge Malaysia Weekly on May 9, 2022 - May 15, 2022

LOW-profile cable support system provider United U-Li Corp Bhd has set a target to grow its overseas contribution to more than one-third of revenue within the next two years.

In fact, it is close to reaching its goal. Export revenue increased 126.8% year on year to RM45.41 million for the financial year ended Dec 31, 2021 (FY2021), accounting for 22.17% of the group’s revenue, against 12.58% in FY2020.

This also helped the group achieve its record-breaking net profit of RM44.06 million for FY2021, a twelvefold jump from the RM3.52 million recorded in FY2020. Revenue rose 28.7% to RM204.85 million from RM159.16 million in that period.

“With (contributions from) existing and new customers as well as exports, we expect to register double-digit growth in revenue and profit for FY2022,” United U-Li founder, managing director and CEO Tan Sri James Lee Yoon Wah tells The Edge in a recent interview.

“I have been in this line for 40 years. I don’t see things slowing down. As long as you need electricity, our products will still be required,” he adds.

The group has kept a low profile, with the last media interview being in 2006. As such, many may not be aware of the business the group is in.

In FY2021, the cable support system segment contributed 85.4% to the group’s top line, with products ranging from cable trunking, cable tray, cable ladder and wire basket to floor trunking. The remaining 14.6% came from the light fittings division.

According to Lee, the group supplies cable support products to a wide range of industries, with the key focus areas being construction, power plants and water treatment plants. It serves as a core pillar to the mechanical and electrical sector. “We are in every sector such as MRT (mass rapid transit) and LRT (light rail transit), and we also supply a lot to hospitals.”

Today, Singapore, Bangladesh, Cambodia and Vietnam are United U-Li’s key export markets.

However, the group has no plans to expand into new markets for now, even though more countries have lifted travel restrictions.

“Wait till things settle. And then we will look at expanding to more markets,” he says. In total, the group’s customer base exceeds 2,000.

More challenging for small players

Lee, a veteran in the mechanical and engineering sector, says it has become more challenging for small players to operate in the cable support system industry. “Last time there were plenty of competitors. When Covid-19 came, a lot of them were knocked down by financial problems.”

Notably, steel prices have doubled in the past two years.

“You need a lot of cash flow to operate with the labour shortage issue. Last year, the industry also faced material shortages.”

Looking ahead, Lee shares that the group is keen to grow its business organically, except for the lighting division which needs mergers and acquisitions (M&A) to expand further.

“At the moment, there is no plan for M&A. I still believe in organic growth because corporate culture is different when you do M&A,” says Lee.

Though it sees vast potential abroad, United U-Li has no plans to set up plants in the regional markets.

“I prefer to do it locally. We don’t know the people and by-laws there. You see how many succeed when they set up JVs (joint ventures) overseas?” he says.

In Malaysia, the group operates five manufacturing sites in Seri Kembangan, Balakong and Taming Jaya in Selangor as well as in Ipoh, Perak, and Nilai, Negeri Sembilan. It has two pieces of land measuring 20 acres that have yet to be developed due to the escalating raw material prices. The new plant will be mainly focused on export markets as more warehousing space is needed.

“A plant was supposed to be built this year but as the construction cost has doubled, we held back ... Instead, we are using the cash to buy raw materials,” he says, adding that the plan will be revisited when construction costs stabilise.

Currently, United U-Li’s existing production facilities are still able to cope with the orders, given that its utilisation rate is only 50%-60%.

Like other manufacturers, United U-Li is also facing a shortage of manpower. However, Lee is hopeful that the situation will improve when foreign workers start arriving in June. About 60% of the group’s workforce are foreigners.

Having said that, he stresses that the group has achieved an automation rate of 70%.

The group’s main raw materials are hot- and cold-rolled steel, with the main suppliers being Mycron Steel Bhd and CSC Steel Bhd. The surging steel prices do not worry Lee as the group is able to pass on the additional costs to its customers. About 20% of its raw materials are imported.

“So now, it is difficult for new players to come in. Raw material purchases are on a cash delivery basis, how could small players take it? The Russia-Ukraine war is still on and nobody can predict the prices.”

Kenanga Research believes the group will continue to register strong profits in the coming quarter.

“Flat steel prices have rebounded strongly recently since coming off in October 2021 due to the Russia-Ukraine war. This also means flat steel supply will continue to remain tight. This favours United U-Li as [it] deters competitors (which are smaller in size) in this space from coming back due to the high raw material costs as higher working capital is required to purchase raw materials,” the research house says in an April 4 note, maintaining an “outperform” call on United U-Li, with an unchanged target price of RM2.30.

Kenanga Research also points out that in the current tight market, local flat steel suppliers favour United U-Li as a client given its strong cash position, which guarantees prompt payment.

In view of the ongoing expansion, United U-Li is not ready to set a dividend policy yet. In FY2021, it paid a four sen per share dividend.

“Once we have enough cash flow, then we reward our shareholders. The payout is dependent on the cash flow,” says Lee.

The group remained in a net cash position of RM38.4 million as at end-December 2021, with gross borrowings of RM44.3 million.

“Management is the key. Try to reserve cash, so you don’t have to worry about the rainy days,” Lee says.

Having completed his secondary education in 1975, Lee set up United U-Li in 1979. From a small workshop in Petaling Garden, Selangor, he brought the group to the next level by listing on Bursa Malaysia in April 2002.

In recent years, there have not been many changes in Lee’s shareholding in the group, with direct and indirect stakes of 2.98% and 37.19% respectively. More than 30% of the group’s shares are held by institutional funds.

Trading at a forward 12-month price-earnings ratio of 5.7 times, United U-Li’s share price has gained 2.24% year to date to close at RM1.31 last Thursday, valuing it at RM284.79 million.   


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