9MFY21 core net profit of RM73m (+98% YoY) missed HLIB and consensus estimates. This disappointment was due to global logistic issue which caused delivery delays for certain semiconductor equipment. Order book remained at all-time high of more than RM100m. Outlook remains robust despite FMCO which capped utilization at 60%. Reiterate BUY with lower TP of RM7.00 (pegged to 50x of CY22 EPS), reflecting the downward earnings revision. The escalating trade intensity may eventually benefit UWC which provides one -stop solution a s more firms look for alternatives to avoid import tariffs.

Slightly below. 3QFY21 core net profit of RM282m (-20% QoQ, +70% YoY) brought 9MFY21 sum to RM73m (+98% YoY) which missed expectations, accounting for 70% of our and consensus full year forecasts, respectively. The underperformance was due to logistical impact on semiconductor business as highlighted before (refer to our report titled “Strong Demand Spurring Rapid Expansion” dated 19 April 2021). One-off items in 9MFY21 include government grants amortization (-RM884k), PPE disposal gain (-RM252k), miscellaneous income (-RM100k) and forex loss (+RM2.6m).

Dividend. None (3QFY20: none). UWC usually declares dividend at the end of FY.

QoQ. Turnover eased 8% mainly due to weaker demand from life science industry, which was partly offset by expansions in semiconductor and heavy duty segments. Having said that, delivery of certain semiconductor equipment was hampered by the Suez Canal obstruction in late March. In turn, core earnings fell by 20% due to higher D&A (+83%) more than sufficient to nullified the savings in opex and finance cost.

YoY. Sales jumped 29% as orders from semi and life science segments swelled. As a result, core earnings increased 70% to RM22m on the back of better economies of scale and lower corporate effective tax rate (15.4% vs 3QFY20: 18.9%).

YTD. For the same reasons mentioned above, top and bottom lines surged 40% to RM221m and almost 2 fold to RM73m, respectively.

Sales breakdown. For 3QFY21, semi: 71% (2QFY21: 60%); life science / medical: 18% (32%); and heavy duty and others: 11% (8%).

Order book. Ended 3QFY21 with more than RM100m (slightly higher QoQ) with semi: 80%; life science / medical: 17%; and heavy duty and others: 3%.

Outlook. UWC remains optimistic of its business prospects. On the recent FMCO imposition, UWC is categorized under essential services and allowed to operate at 60% capacity. Throughout this challenging period, it did not receive any order cancellation. On top of that, enquiries kept flowing in from existing and potential customers for both semiconductor and life science industries. It also took the necessary preventive measures to minimize the impact caused by Covid -19 on its operation.

Forecast. Tweak model based on the deviation mentioned above. As a result, FY21- 23 earnings are revised downward by 4%, 3% and 4%, respectively.

Reiterate BUY with a lower TP of RM7.00 (previously RM7.28), pegged to unchanged 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 - 16 Jun 2021