After our recent site visit, we remain optimistic and confident over UWC’s business prospects. Semiconductor orders remain very strong and UWC is putting more emphasis on frontend customers. It will gradually exit heavy duty business to dedicate capacity to more profitable segments. Reiterate BUY with unchanged TP of RM7.28, pegged to 50x of CY22 EPS. The escalating trade intensity may eventually benefit UWC which provides one-stop solution as more firms look for alternatives to avoid import tariffs.

We visited UWC recently and there were more activities on the ground than meets the eye. Overall, we remain optimistic and confident over its long term prospects.

Semi Customer A. Surprisingly, orders for logic chip tester remain very strong (previously expect to trend down) and UWC shared that this may due to new CEO’s strategy to continue to invest in its own foundry. Automotive chip tester delivery has begun and is ramping up strongly, targeting to reach 10 units per week. UWC is expanding a dedicated space for auto chip tester manufacturing where 24 CNC machines will be equipped with robots to automate material handling.

Semi Customer T. Orders are overwhelming but facing some shipment delays mainly due to Suez Canal obstruction in late March. A lot of finished manipulators are idling in the warehouse yet did not receive any order suspension or reduction. Assembly bays including the newly expanded were full.

Semi others. Parts production for Customer C has started and is expected to ramp going forward. These parts will eventually be assembled into frontend equipment. Clean room is ready to handle orders from another frontend client. UWC has already sent one prototype for qualification and testing purposes.

Life science. Order pipeline remains robust as the application of test equipment will be catered for other new virus strains. Currently, it is in the midst of developing a few other medical equipment with customers.

Heavy duty. Relocated the production floor and will slowly exit the business in order to make space for new and existing customers with much higher margins.

Expansions. Overall activity on site was very busy while expansions are ongoing at multiple fronts. We noticed a lot of new CNC machines which UWC traded in for better performance (speed and quality) and enhanced with automation. Visited the newly expanded area for paint jobs with impressive in-house automation. New factory is under construction next to the existing plant which UWC will lease in the future.

Recent 5G product award. This is a testament of UWC’s capability as a one-stop solution provider for advance technology products. This milestone solidifies its growth trajectory over the long term as global 5G is still in its infancy and we foresee great opportunities ahead. Like other testers, we think this product will gradually ramp up in volume and enhance its bottom line reasonably.

Order book. Ended 1HFY21 with RM100m (flat QoQ) with semi: 74%; life science / medical: 20%; and heavy duty and others: 6%.

Forecast. Maintain.

Reiterate BUY with unchanged TP of RM7.28, pegged to 50x of CY22 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 - 19 Apr 2021