HLBank Research Highlights

UWC - 9MFY22 Results Within Expectations

HLInvest
Publish date: Wed, 22 Jun 2022, 09:42 AM
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This blog publishes research reports from Hong Leong Investment Bank

9MFY22 core net profit of RM73m (flat YoY) which matched HLIB and consensus estimate at 69% and 70%, respectively as we expect a strong quarter ahead. Order book surged by 12% QoQ to a record-breaking RM190m. Outlook remains robust on the back of strong semiconductor orders. Functional tester is expected to be launched by end of 2022 while the new simulation system tester is expected to ramp up progressively in 3QCY22. Reiterate BUY but with lower TP of RM4.21 (34x on FY23 EPS). The ongoing trade intensity may eventually benefit UWC which provides a one-stop solution as more companies shift production out of China to avoid import tariffs.

In line. 3QFY22 core net profit of RM27m (+16% QoQ, +22% YoY) brought 9MFY22’s to RM73m (flat YoY) which came in within expectations, accounting for 69% and 70% of our and consensus full year forecasts, respectively. We expect 4QFY22 to be a stronger quarter. One-off items in 9MFY22 include government grants amortization (-RM884k), impairment losses in trade and other receivables (+RM304k), forex gain (- RM3.0m) and loss on fair value adjustment on marketable securities (+RM150k).

Dividend. None (3QFY21: none). UWC usually declares dividend at the end of FY.

QoQ. Turnover strengthened by 9% to RM87m mainly thanks to higher contribution from semiconductor. Despite the higher share grant expenses and D&A (+8%), core earnings grew 16% to RM27m attributable to improved EBITDA margin (+3.1ppt) on the back of better economies-of-scale.

YoY. Similarly, sales expanded by 22% mainly attributable to the sustainable solid demand from the group’s global customers in the semiconductor industry. In turn, core net profit also gained 22% despite higher D&A (+21%) as operational excellence led to higher EBITDA margin (+5.7ppt). 3QFY22 other income included RM500k of hiring incentive received through UWC’s participation in the JomKerja@NCER programme introduced by NCIA and PENJANA as the group provided employment opportunities to unemployed graduates and retrenched workforce.

YTD. For the same explanations above, top line grew 10%. However, bottom line was rather flat due to higher staff cost and D&A.

Sales breakdown. For 3QFY22, semi: 80.5% (1QFY22: 75.2%); life science / medical: 17.2% (17.5%); and others: 3.3% (6.3%).

Order book surged by 12% QoQ from RM170m to record-breaking RM190m with semiconductor: 70%; life science / medical: 27%; and others: 3%.

Outlook. Functional tester is expected to be launched by end of 2022 while the new simulation system tester is expected to ramp up progressively in 3QCY22. The development of 5G mmW and V2V testers remain on track and is expected to undergo mass production by Jul 2022. Production of AV chip tester continues to run healthy loadings.

Forecast. Unchanged.

Reiterate BUY but a lower TP of RM4.21 (previously RM6.19). Considering US Fed’s hawkish stance to tame inflationary pressures, we lower UWC’s PE valuation to 34x (previously 50x) of FY23 EPS, in line with its peers. 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 - 22 Jun 2022

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