UWC Berhad - Ending the year on a sweeter note

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