Uchi Technologies: European Taste

  • In long-run, sales and profits are governed by the economics behind but not by the transaction currencies
  • High-end automated coffee machines end-users are Europeans but not Americans
  • Jura, a premium Swiss brand of fully automated coffee machine, shows sign of recovery in sales trend
  • Two other relevant eurozone facts and figures

 

Do not be confused by the transaction currencies in Uchi Technologies (UCHITEC). If you read the annual report of UCHITEC, you will see their foreign currency exposures in the table below; it is dominated by US dollar. So, we are tempted to deduce that UCHITEC sales and profits, denominated in Malaysian ringgit, will be strongly linked to the appreciation or depreciation of USD against MYR. In short-run like one or two years, I would agree with this deduction. However, in long-run, sales and profits are governed by the economics behind but not by the transaction currencies.

 

High-end automated coffee machines end-users are Europeans but not Americans

Typical Europeans consume two cups of coffee daily, during their morning and afternoon coffee breaks. In terms of coffee taste, Europeans are demanding; they prefer freshly ground coffee, strong aroma, hot, small cup, usually without milk. This is in contrast to American taste – sweet, cold, very big cup, milk and sugar. Naturally the high-end automated coffee machines end-users are mainly Europeans and the manufacturers are located in Europe. This is also reflected in credit risk management section in the annual report. As the end-users of the coffee machines are in Europe, the selling prices of the coffee machines are listed in euro. More importantly, the manufacturers report their financials in euro and swiss franc. Therefore, I argue what matters more in long-run to UCHITEC sales and profits are actually the exchange rate of EUR/MYR and CHF/MYR.

 

Jura is a premium Swiss brand

In a hot summer, I and my friends paid a visit to JURAworld of Coffee in Switzerland. It’s an exhibition center, showroom and coffee shop. You’ll be impressed by their coffee arts in the shop. While we praised the design and the elegance of Jura’s fully automated coffee machines, we were proud that their electronic control systems were designed and manufactured by a Malaysian company Uchi Technologies. UCHITEC’s role is an ODM (Original Design Manufacturer) of the electronic control systems in the supply chain to make these coffee machines. The technologies include the mixed-signal ICs (Integrated Circuits) and ASICs (Application Specific Integrated Circuits) and software. The electronic control system is like the brain of the fully automated coffee machine which have many sensors and actuators. In case you want to understand how this coffee machine works, I invite you to watch Jura’s key technologies animation.

Usually Swiss brands are expensive. Jura is a premium Swiss brand. Make a guess on how much does their cheapest model A100 cost?

 

Three relevant facts to consider in UCHITEC valuation

Finally, it would be beneficial to consider three relevant facts in Uchi Technologies valuation:

  1. Jura’s sales trend
    • Sales of 2016 exceeded the last peak in 2008
    • It shows significant increase compared to last year
  2. Eurozone economic recovery status check
    • The euro has risen 6% against US dollar in a year
    • Mario Draghi of ECB has started to hint scaling back of quantitative easing (QE) programme
  3. Eurozone political trend
    • The latest survey from Eurobarometer shows that 73 per cent of eurozone citizens supported membership of the single currency area, up 3 points from last year, and the highest level since 2004
    • The EU has broadly shrugged off the impact from last year’s Brexit vote, with eurozone economic growth accelerating at its best pace in seven years and populist parties in the Netherlands, Austria, and France all suffering setbacks in 2017

 

 

Disclaimer

All articles in this blog are intended for research and educational purposes only. Materials in these articles including, but not limited to, graphs, tables and screen shots featuring investment data are not recommendations to buy or sell. The investment analysis, information, and related comments may be out-of-date when you read them. You should do your own due diligence into any investment before making the decision to buy or sell. While we aim to provide accurate data to assist you in performing your stock valuation, we do not take responsibility of  any inaccurate or omitted data. Please verify them. We are not liable for your investment losses.

 

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