FY20 core net profit of RM55m (+93% YoY) was above ours (but in line with consensus) thanks to robust revenue and lower-than-expected tax rate. Top line was driven by both semiconductor and life-science customer demands as order book remain resilient. We raise our earnings projection which resulted in higher TP of RM6.56, pegged to 38x of CY21 EPS. We downgrade UWC to HOLD after it rallied 109% since our last upgrade. The escalating trade intensity may eventually benefit UWC which provides one-stop solution as more firms look for alternatives to avoid import tariffs.

Beats expectation. Record-setting 4QFY20 core net profit of RM18m (+36% QoQ, +61% YoY) sums FY20’s total to RM55m (+93% YoY), which is slightly above HLIB’s full year forecast (106%) but in line with consensus (104%). Major deviations are higher-than-expected sales and lower-than-expected effective tax rate. One-off items in FY20 include government grants amortization (RM1.2m), forex gain (RM1.5k), PPE write-off and disposal gain (RM79k) and miscellaneous income (RM0.3m).

Dividend. Declared DPS of 2 sen (4QFY19: none) totalling RM11m, representing 20% payout ratio. This will go ex on 21 Sep. YTD DPS amounted to 2 sen (FY19: none).

QoQ. As it returned to full capacity after MCO restriction, turnover was higher by 10% at RM61m supported by strong demand from semiconductor and life-science clients (medical technology and healthcare equipment sector). In turn, core net profit surged by 36% thanks to efficiency improvements.

YoY. Top line jumped 31% while driven by stronger demand from global customers in the semiconductor and life science industries. Sheet metal fabrication and value added assembly services contributed 93% of total revenue. As a result, core earnings expanded 61% on the back of better economies-of-scale.

YTD. For the same reason as above, revenue surged 52% to RM219m while core net profit almost doubled (+93%) to RM55m

Order book. Ended 4QFY20 with RM70m (+17% QoQ). It is receiving increased number of enquiries from existing and potential customers directly from their global headquarters. It is working closely with customers in new product development as well as project transfer.

Sales breakdown. For 4QFY20/FY20, semiconductor: 76/73%; life science/medical: 17/18%; and heavy duty and others: 7/9%.

Outlook. UWC has received higher orders for chip tester and flash memory test handler. In addition, it has secured frontend semiconductor equipment customers. The demand momentum for Covid-19 equipment remains robust and contributed strongly to its order book.

Forecast. We raise our FY21-22 revenue and margin assumptions which eventually lifted core net profit projections by 22% and 25%, respectively.

Downgrade to HOLD with a higher TP of RM6.56 (from RM4.90) reflecting our upgrades in earnings and PE multiple. Our TP is pegged to 38x (previously 35x) of CY21 EPS. Since our last upgrade (5 Jun), it has appreciated 109% and we believe that current valuation has factored in the positive catalysts. The escalating trade intensity may eventually benefit UWC which provides a one-stop solution as more companies shift productions out of China to avoid import tariffs.

Source: Hong Leong Investment Bank Research - 4 Sept 2020