Analysts raise valuation on UWC

By NUR HANANI AZMAN

NOMURA Research Institute has raised UWC Bhd’s earnings per share (EPS) estimate for the financial year 2022-2023 (FY22F-FY23F) by 1%-14% due to positive progress in the latter’s product diversification strategy which should cement its long-term growth prospects.

“Our target valuation rises to 50 times from 45 times (above +1 standard deviation) to reflect the growing earnings momentum, leading to a higher target price (TP) of RM7.73 on UWC.

“With 18% implied upside, we reaffirm ‘Buy’. UWC now trades at 42.2 times calendar year 2022 (CY22F) price-earnings,” said its analyst, Heng Siong Kong in a research note.

Key risks for the TP include a prolonged Covid-19 impact, changes in the US-China trade relations, key customers’ business slowdown and competition.

UWC’s net profit more than doubled to RM27.24 million in the second quarter ended Jan 31, 2021 (2QFY21), compared to RM13.31 million made in the previous year’s corresponding quarter.

Quarterly revenue jumped 41.6% to RM77.81 million from RM54.94 million in 2Q19, driven by the UWC’s larger involvement in the life science and medical technology industry.

UWC’s orderbook stands at RM100 million as of end-January 2021 (similar to October 2020). Management highlighted its dedication to automation processes to further improve overall manufacturing efficiencies.

In its official disclosures, UWC highlighted mass production of its autonomous vehicle reliability chip testers will commence in the second half of CY21.

While initial orders may not be as high as its existing PC chip testers, Heng sees significant potential in the long run, amid the growing popularity of electric vehicles.

“It has completed the development of a new manipulator model with its existing customer, for which we expect average selling price improvement.

In the life sciences segment, UWC continues to see growing orders for Covid-19 testers, and has recently started polymerase chain reaction test kit assembly after being qualified in November 2020,” he added.

Hong Leong Investment Bank (HLIB) reiterated its ‘Buy’ call on UWC with a higher TP of RM7.28, pegged to 50 times of CY22 EPS (previously 42 times of FY22 EPS).

HLIB analyst Tan J Young said 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.

He said UWC’s outlook remains robust as 10,000 cleanroom is ready for frontend semi equipment high- level assembly.

“It is co-developing 5G NR mmWave tester with its client and UWC has also purchased new automation machines such as robotic arm and collaborative robot to boost efficiencies.

“Tweak model based on the deviation mentioned above. As a result, FY21-FY23 earnings are revised upward by 10%, 5% and 20% respectively,” he stated in his recent report.

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