• FY24 core net profit was above our forecast, but fell short of consensus estimates
• 4QFY24 core earnings increased due to revenue improvement, reduced losses from new subsidiaries and lower effective tax rate
• Cut our earnings forecasts by 27-31%. Maintain BUY rating with lower target price of RM2.70

Above expectations

UWC's FY24 revenue declined 9% YoY to RM249m, impacted by a prolonged sector recovery that led to reduced semiconductor orders (-33%). The revenue weakness was partly offset by growth in the life science (+1%) and others (+142%) segments, which largely consist of EV business. The back-end business is showing signs of recovery, particularly in the system level and performance testers, along with gradual improvements in the front-end business. FY24 EBITDA margin contracted 16ppts to 15% due to weaker operating losses and higher losses from the new business. Overall FY24 core net profit of RM15m (-72% YoY) was above our expectations but below consensus estimates, representing 122% and 57% of respective forecasts. The earnings beat was due to stronger-than-expected revenue recovery which resulted in better operating leverage.

Sequential core net profit improved

UWC recorded its fourth consecutive quarter of revenue improvement in 4QFY24, with revenue increasing 15% QoQ to RM76m. The stronger revenue was driven by the broad sector recovery across the semiconductor (+25% QoQ), life science (+10% QoQ), and others (+6% QoQ). Excluding forex losses, 4QFY24 core net profit came in at RM8m (>100% YoY) as new subsidiaries' losses eased, lower effective tax rate and stronger EBITDA margin (+4ppts). UWC’s latest orderbook increased to RM140m, up from RM120m in 3QFY24 with 18% from the front-end segment.

Maintain BUY with lower TP of RM2.70

Despite the earnings beat, we cut our FY25–26E by 27–31% to reflect the slower-than-expected recovery from its main back-end customer. We reiterate our BUY rating but lower our 12-month target price to RM2.70 (from RM3.68), based on an unchanged target 35x PE multiple (slightly above -1SD of its 5-year mean) on FY25E EPS. Key downside risks include prolonged sector recovery, continued order delay by customers and margin pressures.

Source: Phillip Capital Research - 25 Sept 2024