As the logistical issues are now resolved, UWC are taking various measures including leasing a new plant for expansion and rolling out staff vaccination program to mitigate Covid-19 risks. Overall, we remain optimistic and confident over its long term prospects. Reiterate BUY with unchanged TP of RM7.00, 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.

As the logistical issues are now resolved, UWC are taking various measures including leasing new plant for expansion and rolling out staff vaccination program to mitigate Covid-19 risks. Overall, we remain optimistic and confident over its long term prospects.

Semi Customer A. Orders for logic chip tester remain resilient but expected to trend downward, replaced by next generation tester which is already in the works with mass production target earliest by 2QCY22. Automotive chip tester (ASP: ~RM100k/unit) has the potential to lift order book by RM30m and plans to begin production in midJuly, coincides with the expected shipment of robotic arm. Recall that, 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. Suez Canal blockade impact was estimated at RM5m revenue in 3QFY21 but this will be recognized in 4QFY21. Manipulator demand forecast from Taiwan is guided to be strong with visibility till Aug 2022.

Semi Customer K. After being awarded with 5G tester orders, UWC recently won another project to manufacture 5G V2V autonomous tester. For this new order, UWC will be responsible for manufacturing design and build the whole tester, thus yielding higher ASP ~RM200k/unit with order potential of RM20m.

Semi others. Part productions for Customer C and AE have started and are expected to ramp. These parts will eventually be assembled into frontend equipment. Clean room is ready to handle orders from another frontend client (RM10m order potential in FY22). UWC has sent one prototype but qualification and testing are taking longer lead time due to involvement of many parties during this pandemic period. UWC is also working with a potential European backend player for ATE production.

Life science. Sales declined sequentially in 3QFY21 due to lower orders for Covid-19 equipment. However, demand has picked up again in 4QFY21 and expecting higher bookings for diffusion pump. Few new products including DNA analyser are in the pipeline which will sustain this segment’s YoY growth.

Expansions. As FMCO SOPs are restricting construction progress of the new plant, UWC has leased a 40k sqft factory in Taiping for expansion (+10% floor space) and plan to commence production in Aug. It will be hiring additional 200 staff for this plant.

Staff vaccination program. For its employee welfare, UWC will be vaccinating 740 staff on a 2-day program beginning 30 June. Once completed, UWC may be allowed to operate at 100% capacity.

Forecast. Maintain.

Reiterate BUY with unchanged TP of RM7.00, 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 - 29 Jun 2021