Uchi favours ODM over OEM contracts in evaluating new opportunities

PETALING JAYA: Uchi Technologies Bhd is expected to face potential headwinds such as rising macroeconomic uncertainties in core markets, demand-side risks, external cost pressures, and higher electricity tariffs in the second half of 2025 (2H25).

The stronger ringgit could also weigh on margins and challenge management guidance, said Hong Leong Investment Bank (HLIB) Research.

Its core markets include thr European Union and the United States.

Uchi remained highly selective in evaluating new opportunities, favouring partnership-based Original Design Manufacturer (ODM) models over traditional Original Equipment Manufacturing (OEM) contracts.

It emphasised that ODM engagements tend to foster stickier, longer-term relationships, as it is involved from the early research and development stages of the customer’s product development.

HLIB Research has maintained its “hold” call on the stock with an unchanged target price of RM2.90 a share based on 15 times financial year 2025 earnings per share.

The research house said the stock offers an attractive dividend yield of over 5%, underpinned by a minimum 70% payout policy and a solid cash position of RM133mil, which it said would provide some degree of share price support.

Looking into 2H25, the group expects the art-of-living segment to deliver a stronger performance, while the biotechnology segment is likely to remain soft, according to the research house.

The biotechnology segment is constrained by a long product lifecycle and limited new product introductions, while the art-of-living segment performance is supported by the customer’s continued focus on launching new products despite the backdrop of reciprocal tariffs.

It said the new product launch pipeline from its key customer is expected to support sequential sales growth in the segment.

However, the group cautioned that the guidance is contingent on current on-hand order forecasts and could be revised should there be a deterioration in consumer sentiment.

On new customers, the research house said similar to other electronics manufacturing services players, the initial announcement of reciprocal tariffs had prompted supply chain enquiries from several multinationals exploring potential diversification, including routing production to Uchi’s facilities.