2QFY20 core net profit of RM13m (+26% QoQ, N/A YoY) beat our expectation thanks to robust revenue while matching consensus estimate. 2QFY19 figures are not available for comparison as it was newly listed. Top line was driven by both semiconductor and life-science customer demands as order book remain robust. We raise our earnings projection which resulted in higher TP of RM2.59, pegged to 23x of CY21 EPS. However, we reiterate HOLD call. The escalating trade intensity may eventually benefit UWC which provides one-stop solution as more US companies look for alternatives to avoid import tariffs.

Beat expectation. 2QFY20 core net profit of RM13m (+26% QoQ, N/A YoY) brought 1HFY20’s total to RM24m (+213% YoY), forming 53% of our full year estimate while this matched street’s at 47%. 2QFY19 figures are not available for comparison as it was newly listed. The outperformance was attributed stronger-than-expected sales. One-off adjustments in 1HFY20 include government grants amortization (RM0.6m), PPE disposal gain (RM12k) and miscellaneous income (RM82k).

Dividend. None (2QFY19: None).

QoQ. Turnover was higher by 17% at RM55m supported by stronger demand from semiconductor (especially on the test equipment) and life-science customers. Core net profit surged even stronger by 26% to RM13m mainly thanks to lower effective corporate tax rate (2QFY20: 21.8% vs 1QFY20: 24.3%).

YoY. 2QFY19 figures are not available for comparison as it was newly listed.

YTD. Top and bottom lines expanded by 72% and 231%, respectively mainly driven by semiconductor segment. Majority of the group’s revenue was contributed from sheet metal fabrication and value-added assembly services segment, which accounted for approximately 92% of the total revenue. These specialised servic es deliver one-stop strategic solution to clients, from piece parts up to full assembly of products.

Order book. Ended 2QFY20 with RM58m (+5% QoQ) and we gathered that this is still on the uptrend.

Outlook. Remains positive on the semiconductor industry. Penang has recorded the highest approved manufacturing investments recently, and UWC sees opportunities in these developments’ spill over effect leveraging on its strength as an integrated engineering support provider. It is engaging new customers constantly to develop prototypes for qualification. UWC is working rapidly with life -science customers to support their contribution at the front line in the analysis of the Covid-19 virus.

Forecast. We tweak our FY20-22 revenue assumption which eventually lifted core net profit projections by 10%, 15% and 18%, respectively. Maintain HOLD with a higher TP of RM2.59 (from RM1.94) reflecting our upgrades in earnings and PE multiple. Our TP is derived based on 23x (previously 20x) of CY21 EPS. We opine that UWC deserves a higher PE multiple given its solid growth trajectory ahead, leveraging on its expansion plan. The escalating trade intensity may eventually benefit UWC which provides a one-stop solution as more US companies look for alternatives to avoid import tariffs.

Source: Hong Leong Investment Bank Research - 6 Mar 2020