UWC may see better margins on higher value chain

PETALING JAYA: There is room for margin improvements at UWC Bhd as it moves towards a higher value chain on the back of new strategies and additional services as well as value adds, says Mercury Securities.

This is further helped by the group securing several models each for front-end assembly of control boxes, electric vehicle testers as well as wafer aligners.

As of December 2023, UWC, an engineering supporting service provider, has an order book of around RM120mil, with the semiconductor industry taking up 76.9% of the amount, followed by life science and medical industry 23.1%, and others 5.9%.

“To note, total orders from front-end semiconductors represent 10% of total order book,” Mercury Securities stated in a report.

The 12.1 acre land in Batu Kawan, Penang, that was acquired by UWC in 2021 for RM28.96mil is expected to complete its development of Phase 1 of a new factory with 100,000 sq ft in the first quarter of 2024 and to be utilised as a warehouse.

Mercury Securities said Phase 2 will be completed by the end of 2024.

The research house said the new plant will have a built-up area of 500,000 sq ft and is expected to increase its total floor space to more than one million sq ft.

The semiconductor segment, which serves front-end customers, will occupy the majority of the space.

To increase its current capacity, a 30,000-sq-ft mezzanine floor will also be created in the second existing factory and it is estimated to house four to five numerical control machines.

On a separate note, UWC has recently finished building a new fabrication facility in Kamunting, Taiping, and will be aiming to purchase additional land nearby.

Mercury Securities said the group aims to concentrate on its fabrication work in Taiping, with the Batu Kawan site primarily handling high-end assembly projects.

For its first quarter ended Oct 31, 2023, UWC’s revenue fell 50.66% quarter-on-quarter (q-o-q) to RM45.46mil while net profit fell 85.12% q-o-q to RM4.35mil or earnings per share of 0.4 sen per share.

The fall in the numbers was due to lower revenue caused by the cyclical downturn of the semiconductor market, said Mercury Securities.

The research house has revised its revenue and earnings estimates of UWC for financial year 2024 (FY24) lower by 3.6% and 9.5%, respectively, in line with the slowdown of the overall semiconductor industry.

Mercury Securities maintained a “hold” call on UWC with a target price of RM3.28 a share based on FY25 earnings per share of 8.4 sen and a price-to-earnings ratio of 39 times.