1HFY21 core net profit of RM51m (>+100% YoY) exceeded HLIB but in line with consensus estimate. Top line was driven by both semiconductor and life science segments, which led to superior efficiency improvement. Order book remained at all-time high of RM100m. Outlook remains robust as 10k cleanroom is ready for frontend semi equipment high level assembly. Reiterate BUY with higher TP of RM7.28, 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.

Exceeded HLIB but in line with street. Record-breaking 2QFY21 core net profit of RM28m (+24% QoQ, >+100% YoY) brought 1HFY21 sum to RM51m (>+100% YoY) which beat our estimate at 54% but match consensus at 51%. The outperformance was attributable to stronger-than-expected EBITDA margin. One-off items in 1HFY21 include government grants amortization (-RM589k), PPE disposal gain (-RM252k), miscellaneous income (-RM63k) and forex loss (+RM2.9m).

Dividend. None (2QFY20: none). UWC usually declares dividend at the end of FY.

QoQ. Turnover was higher by 9% mainly due to higher demand from semi and life science industries. In turn, core earnings grew 24% thanks to favourable sales mix (higher contribution from semi), automation efficiency gains and lower D&A (-56%).

YoY. Sales jumped 42% as orders from semi and life science segments swelled. As a result, core earnings more than doubled to RM28m on the back of better economies of-scale and lower D&A (-25%).

YTD. For the same reasons mentioned above, top and bottom lines surged 47% to RM149m and more than 2 fold to RM51m, respectively.

Sales breakdown. For 1HFY21, semi: 59% (1QFY21: 58%); life science / medical: 33% (34%); and heavy duty and others: 8% (8%).

Order book. Ended 1HFY21 with RM100m (flat QoQ) with semi: 74%; life science / medical: 20%; and heavy duty and others: 6%.

Outlook. UWC remains optimistic of its business prospects. On semi, UWC foresees a stronger demand for chip and test handlers in coming quarters amid global shortage of automotive chips. The mass production of autonomous vehicle reliability chip tester is expected to commence by end of 2H21. For life science, UWC expects sustainable growth going forward as the application of test equipment will be catered for other new virus strains. Currently, it is in the midst of developing a few other medical equipment with customers.

Expansion. It is co-developing 5G NR mmW tester with its client. 10k cleanroom is completed in Feb and ready to cater for frontend semi equipment high level assembly. UWC has also purchased new automation machines such as robotic arm and cobot to boost efficiencies.

Forecast. Tweak model based on the deviation mentioned above. As a result, FY21- 23 earnings are revise upward by 10%, 5% and 20%, respectively.

Reiterate BUY with higher TP of RM7.28, pegged to 50x of CY22 EPS (previously 42x of FY22 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 - 9 Mar 2021