This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

Uchi Technologies Bhd (Uchi) is no stranger to The Edge Billion Ringgit Club (BRC) Awards. For the fourth consecutive year, the Penang-based company has bagged the award for highest return on equity (ROE) over three years in the industrial products and services sector.

A familiar name among the investing fraternity, Uchi is known to many as an original design manufacturer that specialises in the design, research and development (R&D), and production of electronic control systems. Its control modules are used largely by clients producing fully automated coffee machines for a global market.

For the financial year ended Dec 31, 2022 (FY2022), 88% of its revenue came from strong global demand for fully automated coffee machines. The remaining 12% was from electronic control systems such as weighing scales, centrifuges and deep freezers.

During the BRC award for the three-year review period between FY2020 and FY2022, Uchi delivered an adjusted weighted ROE of 55.1% — double that of its nearest peer, based on the BRC awards methodology. Uchi’s ROE inched higher from 49.1% in 2020 to 49.3% in 2021 and thereafter jumped to 60.9% in 2022.

The stellar returns came even as Uchi’s profit after tax grew at a 13.5% compound annual growth rate over three years between FY2019 and FY2022, despite the challenges brought about by the Covid-19 pandemic that saw almost all economic activities come to a standstill as many parts of the world went through various stages of lockdowns. There was, however, a surge in demand for at-home coffee products.

Uchi’s net profits jumped 10.4% year on year to RM83.8 million in FY2020, from RM75.9 million, and thereafter expanded 9% y-o-y to RM91.4 million in FY2021.

In FY2022, Uchi recorded a record profit of RM124.9 million, a 36.7% surge from FY2021, partly thanks to the strengthening of the US dollar against the ringgit. The group also enjoys tax exemption because of the pioneer status of a subsidiary, Uchi Optoelectronic (M) Sdn Bhd (Uchi Opto), which exempts some of its products from income tax for five years from Jan 1, 2018, to Dec 31, 2022.

The Uchi management is led by Ted Kao De-Tsan, a Taiwanese who founded the company in 1981 (then known as Uchi Electronic Co Ltd). Kao, 65, is currently executive director and majority shareholder with a 20.20% stake.

In 1989, he set up a manufacturing company in Perai, Penang, under Uchi Electronic (M) Sdn Bhd and Uchi Opto, with its first factory measuring 13,094 sq ft in built-up area.

Today, Uchi’s modules are being developed for global leaders producing high-end household and commercial appliances such as laboratory or industrial instruments.

Although the global economic climate remains challenging, Uchi chairman Charlie Ong Chye Lee said in its 2022 annual report that the strengthening of the US dollar has helped the company mitigate the adverse impact and maintain its cash position.

Ong said the group would continue with its R&D efforts by allocating 7% of its revenue to them. “Our objective is to guarantee that our products consistently meet customers’ demands and provide exceptional, cutting-edge solutions to clients across the globe,” he said, adding that the group had submitted four applications to the Malaysian Investment Development Authority seeking further pioneer status benefits.

For the first half ended June 30, 2023 (1HFY2023), Uchi’s net profit jumped 10.9% y-o-y to RM66.2 million, from RM59.7 million, on the back of a 9.7% y-o-y increase in revenue to RM115.2 million, from RM105.1 million. The group, which derives most of its sales in US dollars, attributed the stellar performance to the appreciation of the currency against the ringgit. Income tax for the period ended June 30 increased RM17 million, owing to an increase in income generated from products without pioneer status.

In notes accompanying its 1HFY2023 earnings release, Uchi said it was “cautiously optimistic” of its US dollar revenue growing at a “high single-digit” rate compared to FY2022.

“The group anticipates no significant changes in the geographical distribution and the revenue contribution ratio of product groups, even though performance might be affected by factors such as fluctuations in the US dollar, material shortages and changes in material and labour costs. Nonetheless, the group maintains confidence in sustaining profitability with a strong balance sheet,” it added.

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