UWC’s FY21 missed expectations but outlook remains robust

by NUR HAZIQAH A MALEK / pic credit: uwcberhad.com.my

UWC Bhd has a stable demand outlook backed by its current orderbook despite recording a weaker quarterly financial performance as a result of logistical challenges and capacity restrictions from Movement Control Order (MCO) enforcement to combat the spread of the Covid-19 pandemic.

Hong Leong Investment Bank Bhd (HLIB Research) analyst Tan J Young said the escalating trade intensity may eventually benefit the company, which provides a one-stop solution tech company and sheet metal fabricator, as more firms are looking for alternatives to avoid import tariffs in China.

“Orderbook remained at RM100 million, while outlook remains robust amid these challenging times and the newly-leased Taiping factory has commenced operation,” Tan wrote in a research report yesterday.

He noted that UWC’s orderbook is contributed by the semiconductor segment at 79%, followed by life science and medical (18%) and others (3%), as of Sept 1, 2021.

The analyst added that 80% of UWC’s employees have completed two doses of vaccination and the company was operating at full capacity since Aug 20.

“There was no order cancellation when output was restricted. Instead, it continued to receive orders from semiconductor, life science and 5G test equipment customers,” he said.

Tan noted that the newly-leased Taiping factory commenced operation in August with 49 new staff and UWC is developing other medical equipment to test the mutated Covid-19 strains with clients.

Despite a stable outlook, the investment bank has revised UWC’s financial year 2022 (FY22) to FY23 earnings forecasts downward by 7% and 17%, respectively.

HLIB Research has reiterated ‘Buy’ rating on UWC with a lower target price of RM6.75 from the previous RM7, pegged to unchanged 50 multiple of FY23 earnings per share.

UWC posted a core net profit of RM90 million for FY21, which missed the estimates of research houses due to logistical challenges and capacity restrictions from the MCO 3.0.

The fall was also due to one-off items in FY21 including government grants amortisation costing RM1.2 million, private personal equipment (PPE) disposal at a loss of RM235,000, PPE written off accounting (+RM8,000), miscellaneous income (-RM548,000) and foreign exchange losses of RM35,000.

On a quarter-on-quarter basis, UWC’s turnover eased 11% due to lower contributions from the semiconductor and heavy-duty segments.

Besides the prolonged logistical issue, UWC’s capacity utilisation was limited at 60% and 80% as a result of MCO 3.0 and Phase 1 of the National Recovery Plan.

“In turn, core earnings fell by 28% due to diminishing economies of scale as adjusted Ebitda margin shrank by four percentage points,” Tan stated.

UWC’s sales inched up 4% year-on-year as orders from semiconductor and life science segments improved, while core earnings decreased by 9% to RM16 million on the back of lower adjusted Ebitda margin and higher depreciation and amortisation.

The semiconductor segment contributed 66% of sales for FY21, while life science and medical accounted for 26%, followed by heavy duty and others at 4% each.

UWC shares ended 6.3% higher to RM5.74 yesterday, valuing the company RM6.32 billion.