1QFY21 core net profit of RM23m (+27% QoQ, >+100% YoY) is in line with HLIB and consensus expectations. Top line was driven by demand from life-science industry and led to superior efficiency improvement. Order book inflated 43% QoQ to RM100m. Outlook remains robust with developments in testers (chip and autonomous vehicle), 5G equipment and frontend equipment assembly. Reiterate BUY with unchanged TP of RM8.88, pegged to 38x of FY22 EPS. The escalating trade intensity may eventually benefit UWC which provides one-stop solution as more firms look for alternatives to avoid import tariffs.

Within expectations. Record-setting 1QFY21 core net profit of RM23m (+27% QoQ, >+100% YoY) matched HLIB and consensus full year estimates at 26%, respectively. One-off items in 1QFY21 include government grants amortization (-RM294k), forex loss (+RM1.5k), PPE disposal gain (-RM135k) and miscellaneous income (-RM49k).

Dividend. None (1QFY20: None). Historically, UWC Usually Declares Dividend at the End of FY.

QoQ. Turnover was higher by 16% at RM72m supported by the strong demand from life-science industry along with medical technology and laboratory equipment sectors amid global Covid-19 cases escalation. In turn, core earnings grew 27% thanks to favourable sales mix (high value and semiconductor frontend), efficiency gains and lower finance cost, more than sufficient to offset higher D&A (+32%).

YoY. Top line jumped 52% while driven by stronger demand from global customers in the semiconductor and life science industries. As a result, core earnings more than doubled to RM23m on the back of better economies-of-scale and lower finance cost despite higher D&A (+71%).

Sales breakdown. For 1QFY21, semiconductor: 58%; life science/medical: 34%; and heavy duty and others: 8%.

Order Book. Ended 1QFY21 With RM100m (+43% QoQ).

Outlook. UWC remains optimistic of its business prospects. Besides existing clients, it has also been receiving enquiries from potential local and global customers on a regular basis. This will broaden its customer base, diversify its segmental exposures, and increase order book in the process. UWC foresees a stronger demand for chip testers ahead in tandem with the with the projected semiconductor equipment market growth. It is working closely with customers in new product development as well project transfer, at the same time targeting potential high-end customers. It has undertaken the manufacturing of frontend semiconductor and 5G equipment. It is constructing a class 10k cleanroom, which is expected to be completed by early 20 21, to cater for frontend semiconductor equipment assembly. Also, UWC is expanding its assembly bay capacity. The autonomous vehicle chip tester is expected to commence mass production by end of 1HFY21. As for life-science and medical segment, the group expects sustainable substantial growth ahead against the backdrop of Covid-19 and increased health awareness and living quality.

Forecast. Unchanged as Results Are in Line.

Reiterate BUY with unchanged TP of RM8.88, pegged to 38x of FY22 EPS. 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 - 2 Dec 2020