UNIMECH: Poised for Recovery

Background

Unimech Group Berhad, an investment holding company, engages in the system design, fabrication, installation, and maintenance of boilers, combustion equipment, engineering equipment, and piping systems worldwide. For the range of products that Unimech distributes, go here.

Historical Financial Performance

In FY2018, Unimech's revenue rose 12% while pre-tax profit rose 63%.


Graph 1: Unimech's last 19 yearly results

The improved performance was due to better sales & profit contribution from two segments; Valves, instruments and fittings and Electronic.

Table: Unimech's segmental performance for FY2018 compared to FY2017

Recent Financial Results

In QE31/12/2018, revenue rose 2.6% due to higher demand in valves, instruments and fittings segment but the profit before tax decreased by 16.3% during the current quarter was due to impairment in receivables and inventories of approximately RM1.6 million.


Graph 2: Unimech's last 21 quarterly results

Financial Position

As at 31/12/2018, Unimech's financial position is deemed satisfactory with current ratio at 2.0x and gearing ratio at 0.6 time. The only concern is the high level of inventories, with clocked in at a holding period o 385 days. 

Valuation

Unimech (closed at RM1.16 yesterday) is now trading at a PER of 8.3 times. At this PER, the stock is fairly valued.

Technical Outlook

Unimech has found a bottom at RM0.90-0.95. It has just moved above the 30-month SMA line, which may signal the beginning of its price recovery.


Chart: Unimech's monthly chart as at Mar 12, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on good financial performance and position as well as mildly positive technical outlook, Unimech may be a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.