1HFY22 core net profit of RM46m (-9% YoY) missed HLIB and consensus estimates. This disappointment stemmed from lower-than-expected top line. Order book surged by 13% QoQ to record-breaking RM170m. Outlook remains robust on the back of strong semiconductor orders. The newly-acquired leasehold land measuring 12 acres for RM29m is expected to be developed into a production floor over the next 3 years. Reiterate BUY with lower TP of RM6.19 (50x on FY23 EPS). The ongoing trade intensity may eventually benefit UWC which provides a one-stop solution as more companies shift productions out of China to avoid import tariffs.

A miss. 2QFY22 core net profit of RM24m (+4% QoQ, -17% YoY) brought 1HFY22’s to RM46m (-9% YoY) which came in below expectations, accounting for 41% and 42% of our and consensus full year forecasts, respectively. The discrepancy was due to lower-than-expected top line. One-off items in 1HFY22 include government grants amortization (-RM589k), reversal of impairment losses (-RM152k), gain on fair value adjustment on marketable securities (-RM140k), PPE disposal gain (-RM47k), forex gain (-RM174k) and miscellaneous income (-RM847k).

Dividend. None (2QFY21: none). UWC usually declares dividend at the end of FY.

QoQ. Turnover strengthened by 6% mainly thanks to higher contribution from both semiconductor and life science. In turn, core earnings gained by 4% to RM24m despite it was partially offset by the staff cost due to the share grant expenses.

YoY. Similarly, sales inched up 3% mainly attributable to the continued demand from the group’s global customers in the semiconductor and life science and medical technology industries. However, core earnings fell by 17% impacted by higher D&A (+106%) as a result of substantial capex and also increase in headcount in relation to its expansion plan.

YTD. For the same explanations above, top and bottom lines grew 4% and -9%, respectively.

Sales breakdown. For 2QFY22, semi: 75.2% (1QFY22: 77.0%); life science / medical: 17.5% (17.0%); others: 6.3% (5.7%); and heavy duty: 0% (0.3%).

Order book surged by 13% QoQ from RM150m to record-breaking RM170m with semiconductor: 82%; life science / medical: 16%; and others: 2%.

Outlook. Semi orders remain very strong: (i) logic chip testers including the new system tester is expected to commence production earliest by 3QFY22; (ii) 5G mmW over-the-air chamber assembly room has begun operations for orders related to 5G testers which is expected to commence mass production and have more new products in the foreseeable future; and (iii) ramp up production of autonomous vehicle chip testers. The newly-acquired leasehold land measuring 12 acres for RM29m is expected to be developed into a production floor over the next 3 years to overcome the capacity constraint in exiting Batu Kawan facility.

Forecast. Tweak model based on the deviation mentioned above. As a result, FY22- 24 earnings are revised downward by 4-5%, respectively. Reiterate BUY with a lower TP of RM6.19 (previously RM6.52), pegged to unchanged 50x of FY23 EPS. The ongoing 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 - 9 Mar 2022