• 1QFY25 result was deemed in line with expectations as we expect stronger sequential quarters ahead

• Upcoming capacity expansion is expected to cater for improving orderbook outlook

• Maintain BUY rating and higher 12-months TP of RM3.57

Broadly in line with our expectation

Stripping out unrealised forex losses (RM2m), impairment losses (RM0.4m) and fair value gain (RM0.2m), 1QFY25 core net profit of RM9m (+411% YoY) was broadly in line with our and consensus estimates, at 10% and 13%, respectively. 1QFY25 revenue grew 96.7% YoY to RM89.4m, driven by higher semiconductor orders (+115% YoY). This is also supported by the stronger life science segment (+40% YoY) and others (+149% YoY) segments, the latter of which is largely EV-related. Both front and back-end businesses showed stronger recovery, especially from the front-end semiconductor business. 1QFY25 EBITDA margin expanded 4ppts YoY to 17% as two subsidiaries turned profitable, coupled with narrowed losses from the other new businesses. This report marks a transfer of coverage.

Expecting sequential stronger earnings

UWC’s current order book stood higher at RM160m, as compared to RM140m in 4QFY24. The front-end semiconductor business makes up 37% of the total order book, with the overall semiconductor business contributing 77%. Meanwhile, the first phase of production capacity expansion for its front-end semiconductor business is scheduled for completion by Jan25, while the full completion of a 3-storey clean room building is expected by the end of 1Q25. The expanded capacity should cater to the improving order book outlook.

Maintain BUY and higher target price of RM3.57

We raise our 12-month target price to RM3.57 (from RM2.70) after rolling forward our valuation year to FY26E and based on a higher target 40x PE multiple, or 1SD below its 3-year mean (from 35x) to factor in expectations of stronger earnings delivery on the back of broader sector cyclical upturn. Maintain BUY. Key downside risks include prolonged sector recovery, continued order delay by customers, and margin pressure.

Source: Philip Capital Research - 20 Dec 2024