1HFY23 core PATAMI of RM49m (+6% YoY) missed our and street estimates. Order book was lower by 10% QoQ to RM135m while it has secured a new front end semiconductor customer. It remains optimistic towards both its business and the industries in which it operates in for the coming years. UWC is actively working with potential front-end customers for project transfer and confident in securing orders from these new clients. In life science/ medical, it is engaging in various project transfers with customers to secure more full-box-build jobs. Maintain HOLD with a lower TP of RM3.45, pegged to 34x of FY24 EPS.

Below expectations. After adjusting for one-off items which comprised of mainly forex loss, 2QFY23 core net profit of RM26m (+17% QoQ, +12% YoY) lifted 1HFY23 sum to RM49m (+6% YoY), which missed expectations, accounting for 42% and 40% of our and consensus full year forecasts, respectively. The deviation was due to lower-than expected EBITDA margin. One-off items in 1HFY23 included reversal of impairment losses in trade and other receivables (-RM24k), government grants amortization (-RM589k), net forex loss (+RM1.3m) and gain on fair value adjustment on marketable securities (-RM153k).

Dividend. 2Q/1HFY23: None (2Q/1HFY22: none). Usually divvy at the end of the FY.

QoQ. Sales was flat at RM92m as the growth in life science/medical was neutralized by the declines in semiconductor and others. However, core net profit gained by 17% to RM26m thanks to higher adjusted EBITDA margin.

YoY. Turnover expanded by 15% mainly attributable to its expanded capacity to cater for growing order book contributed by semiconductor industry development. In turn, core earnings was higher by 12%.

YTD. Revenue was higher by 19% to RM184m driven by both semiconductor and life science/medical. Bottom line grew at a slower rate of 6% to RM49m due to higher staff cost and D&A.

Sales breakdown. For 2QFY23, semi: 69% (1QFY23: 71%); life science/medical: 23% (21%); and others: 7% (8%).

Order book was lower by 10% QoQ from RM150m to RM135m with the split of semi: 75%, life science/medical: 22% and others: 4%. UWC shared that it has secured a new front-end semiconductor customer in 2QFY23.

Outlook. It remains optimistic towards both its business and the industries in which it operates in for the coming years. Following the construction of class 100 cleanroom facility, UWC expects to increase new front-end exposure as there are more projects in the pipeline. The group is actively working with potential front-end customers for project transfer and confident in securing orders from these new clients. In life science/ medical, it is engaging in various project transfers with customers to secure more full box-build jobs.

Forecast. After tweaking our model based on the deviations mentioned above, FY23- 25 core PATAMI were lower by 14%, respectively. Reiterate HOLD with a lower TP of RM3.45 (previously RM4.00), reflecting the downward earnings revision. Our TP is pegged to unchanged PE multiple of 34x of FY24 EPS (previously CY23 EPS). At current juncture, we think the risk-reward is fair despite 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 - 17 Mar 2023