UWC Bhd (“UWC”), an integrated engineering supporting services provider with multinational clients is seeking to list on the Main Market. BUY with a target price of RM1.13 based on 14x PER FY20 as per the higher range of the industry peers (6x to 15x) on the back of its higher profit margins and a strong customer portfolio. 

UWC mainly involves in metal parts and precision machined components fabrication in addition with value-added manufacturing and assembly services to a diverse range of industries. Major clients are industry leaders namely Agilent (life science and medical technology industry), Bromma (heavy equipment industry) and a renown global semiconductor chip maker. Note that, the aforementioned industries adopt stringent product requirements especially on medical products thereby highlighting UWC’s emphasis on quality control. As such, UWC manages to maintain excellent business relationship with its customers of which 4 of its top 5 customers have been with them for more than 8 years. 

From the RM57.4m of IPO proceeds, 47.8% is earmarked for the purchase of 29 units of new CNC machines in the coming 3 years which is expected to boost the maximum annual capacity of CNC machines by 18.6%. Another 8.2% of the proceeds is allocated for additional 18 units of industrial robotic arms and material handling system to enhance automation process. This will contribute to a minimum cost savings of around RM0.9m per annum. 31.3% and 5.0% of the fund will be utilised for bank borrowings and working capital respectively. Furthermore, the group plans to set up a plating line for plating surface treatment services by year 2021. The planning line will cost approx. RM3m and will be funded via a combination of internal funds and bank borrowings. 

As at 21 May 2019, UWC has unbilled orders of RM41.9m, providing near term earnings visibility over the next 12 months. Post listing, gearing is expected to improve from 0.5x to 0.2x. Management intends to adopt a dividend payout ratio of 20%, projecting to dividend yield of 1.7% and 2.0% in FY19 and FY20 respectively. 

Source: Rakuten Research - 10 Jul 2019