PETALING JAYA: UWC Bhd
’s outlook appears promising on the back of an increase in order inflows as well as signs of recovery suggesting that earnings have likely bottomed out in recent quarters and are poised for a turnaround.
Phillip Capital is optimistic about the company given its front-end (FE) segment is turning positive with improving order inflows and an ongoing effort to qualify a new customer.
The research house pointed out that UWC had bagged RM30mil worth of new orders in the fourth quarter ended July 31, 2024 (4Q24).
“Given the expected surge in orders over the next 12 months, current capacity appears to be insufficient; as such, management is looking to invest in new capacity and cleanroom facilities.
“UWC is also working towards qualifying a new FE customer by end of the calendar year 2024, with the aim of contributing to earnings in 2H25,” Phillip Capital added.
It noted that the FE segment contributes 20% to the group’s total order book of RM130mil, with the largest FE customer accounting for 18%.
As for its back-end (BE) segment, the research house said reviving the BE business volume would face limited downside risks although the pace of recovery remained uncertain.
“Its other US-based BE customer (representing 25% of the current order book) is showing promising signs of recovery, with test handler production rebounding to 50% of its peak levels of the calendar year 2022 in July 2024,” the research house noted.It added that UWC is expanding its production capacity by 20% to 30% to accommodate the expected high order volumes driven by increased artificial-intelligence adoption.
“The new operations in Johor and Thailand are expected to achieve breakeven in 4Q24, with profitability expected to materialise in 2H25,” Phillip Capital said.
It has maintained a “buy” recommendation on the counter with a target price of RM3.68 based on an unchanged 35 times price earnings multiples on FY25 earnings per share.
“We believe the earnings recovery trajectory for FY25 remains on track and is expected to surpass FY24 profit levels, driven by improving FE and BE orders from key customers,” the research house added.
It pointed out that key downside risks include prolonged sector recovery, which could lead to continued customer order delays and further margin contraction.
