United U-LI Corporation Berhad's ROCE Trajectory: A Blueprint for Shareholder Value and Long-Term Viability

For investors seeking companies that balance profitability with capital efficiency, United U-LI Corporation Berhad (KLSE:ULICORP) presents a compelling case. Over the past five years, the Malaysian manufacturer of cable management systems and lighting solutions has transformed from a loss-making entity to a business generating a 12.5% return on capital employed (ROCE) as of June 2025-well above the Building industry average of 8.9%, according to Alpha Spread. This trajectory underscores its ability to create shareholder value while positioning itself for long-term growth.

A Turnaround in ROCE: From Struggles to Strength

United U-LI's ROCE journey reflects disciplined capital allocation. In 2021, the company reported an ROCE of 11.58%, which dipped to 11.01% in 2022, as shown on i3investor. By 2023, it had rebounded to 12%, and as of 2025, it stands at 12.5%, per Alpha Spread. This improvement is particularly striking given the company's historical challenges. As noted in the company's KLSE Screener annual report, United U-LI transitioned from a loss-making position five years ago to a 12% ROCE while increasing capital employed by 39%. Such reinvestment-directed toward expanding production capacity and diversifying product lines-suggests management's confidence in high-return opportunities.

The company's ability to outperform peers is rooted in its operational model. Unlike many rivals in the Building sector, United U-LI has focused on niche markets, such as premium lighting solutions (e.g., Goodlite and OPUPE brands) and customized cable management systems. This differentiation has allowed it to maintain pricing power despite macroeconomic headwinds. For instance, in FY 2024, the company reported a 14% profit margin, down from 16% in 2023, but still robust enough to support its ROCE, according to the annual report.

Strategic Initiatives: Fueling Sustainable Growth

United U-LI's strategic playbook includes geographic expansion and product innovation. The company has leveraged its seven wholly-owned subsidiaries to deepen its footprint in Southeast Asia and beyond, while its R&D investments have led to patented solutions in energy-efficient lighting. The Corporate Governance section of the 2024 annual report describes these initiatives as part of a broader strategy to "capitalize on infrastructure growth in emerging markets."

The financials back this ambition. Capital employed has grown by 39% since 2020, reflecting reinvestment in projects with ROCE exceeding the cost of capital. This aligns with the principles of value creation articulated by Warren Buffett: "Price is what you pay. Value is what you get." By deploying capital at rates above industry benchmarks, United U-LI has delivered a 437% total return for shareholders over five years, per Alpha Spread, dwarfing the sector's average.

Risks and Realities: Balancing Optimism with Caution

While the ROCE trajectory is impressive, investors must consider recent challenges. FY 2024 results revealed a 2.3% revenue decline and a 15% drop in net income, attributed to supply chain disruptions and competitive pricing pressures, as disclosed in the annual report. The ROE (Return on Equity) also fell from 23.58% in 2021 to 9.37% in 2024, according to Yahoo Finance, signaling potential inefficiencies in equity financing.

However, these risks are mitigated by the company's strong balance sheet and strategic flexibility. With a net profit margin of 13.63% in Q1 2025, reported by Yahoo Finance, United U-LI retains ample capacity to absorb short-term shocks. Moreover, its focus on capital-light projects-such as licensing its cable tray designs-reduces exposure to cyclical downturns.

Long-Term Viability: A Case for Patient Capital

The Building industry's projected 7.6% annual growth in Asia over the next two years, noted in the annual report, offers a tailwind for United U-LI's expansion. The company's 9.4% growth forecast in that filing, coupled with its ROCE advantage, positions it to outperform peers. For long-term investors, the key question is whether management can sustain its capital allocation discipline.

Historical data suggests yes. The 39% increase in capital employed since 2020 has been matched by a 12% ROCE, indicating that reinvestment has not diluted returns. This is critical: as Warren Buffett has emphasized, "The most important thing for a business is to have good returns on equity... and to have them consistently." United U-LI's track record supports this consistency.

Conclusion: A ROCE-Driven Investment Thesis

United U-LI Corporation Berhad's ROCE trajectory-from negative returns to a 12.5% industry-leading figure-demonstrates its ability to create shareholder value through disciplined capital use. While near-term challenges exist, the company's strategic focus on differentiation, reinvestment, and geographic expansion provides a solid foundation for long-term viability. For investors prioritizing capital efficiency and sustainable growth, ULICORP offers a compelling case study in how to build a durable business in a competitive sector.