• Our ground check showed increased activity at UWC’s premises, a significant difference compared to early24, with the FE segment spearheading the recovery

• The higher order book, and rising FE orders reaffirms a more concrete recovery momentum

• Maintain BUY with an unchanged target price at RM2.70

FE is poised for a strong recovery

We are increasingly positive on UWC’s recovery prospects, particularly in the FE segment, where overall operations are running at a higher 65% utilisation rate. The total order book continues to show an upward trend, increasing from RM140m at the end FY24, with c.30% now coming from the FE segment– a notable rise from 25% end FY24– reflecting strong structural demand driven by artificial intelligence (AI). UWC is making good progress with its two other new FE customers. Having qualified for one last quarter, the company is now in the process of planning initial deliveries. UWC is also working on qualifying more parts for its European customer and has begun shipping modules, with expectations of a larger contribution in FY26. Plans are also in place to acquire additional land to support this customer’s growth. We expect the Batu Kawan FE customer to contribute 25% of FY25 revenue, with the FE segment collectively accounting for 30%, driving a strong earnings recovery momentum.

Notwithstanding its key customer, the BE outlook is better

UWC’s BE segment is also expected to ride on the strong AI demand. Test handler production for a particular US-based customer is projected to increase from 8 units per week to 12 units by end24 and reach 15 units by mid-25. The Johor and Taiping plants are showing positive progress, with Johor expected to break even by Oct24 and Taiping on track to narrow its losses (4QFY24: -RM1m).

Maintain BUY with RM2.70 target price

UWC will not be spared from forex headwinds in the upcoming 1QFY25 results; however, we expect a recovery in FE equipment spending will help offset the negative impact and drive stronger FY25 recovery. We maintain our TP at RM2.70, based on 35x PE multiple (close to its 5-year mean) on FY25E EPS. Reiterate BUY on the back of WFE market recovery and strong earnings recovery potential. Key downside risks include prolonged sector recovery, softer- than-expected demand recovery, and weaker US$ against RM.

Source: Philip Capital Research - 29 Oct 2024