21 June 2023

Results Review: 3QFY23

HLIB Research
PP 9484/12/2012 (031413) UWC
Tan J Young
jytan@hlib.hongleong.com.my Impacted by semiconductor down cycle
(603) 2083 1721
9MFY23 core PATAMI of RM52m (-29% YoY) missed our and street estimates.

HOLD
Order book was lower by 11% QoQ to RM120m with semiconductor accounting
(Maintain) for the bulk of it. It remains optimistic towards both its business and the
Target Price: RM3.12 industries in which it operates in for the coming years. UWC has initiated the
Previously: RM3.45 construction of a new site in Batu Kawan with cleanroom facility to cater for
front-end semiconductor manufacturing as well as EV projects. In life science/
Current Price: RM2.93
medical, it is engaging in various project transfers with customers to secure
Capital upside 6.6% more full-box-build jobs. Maintain HOLD with a lower TP of RM3.12, pegged to
Dividend yield 0.6% 34x of FY24 EPS.
Expected total return 7.2%
Below expectations. 3QFY23 revenue of RM48m (-48% QoQ, -45% YoY) yielded a
Sector coverage: Technology core net profit of RM3m (-88% QoQ, -89% YoY), bringing 9MFY23’s sum to RM52m (-
Company description: UWC is an integrated 29% YoY), which missed expectations, accounting for 52% of our and consensus full
engineering support service provider with year forecasts. The deviation was due to lower-than-expected revenue and EBITDA
exposures in semiconductor, life science and margin. One-off items in 9MFY23 included reversal of impairment losses in trade and
medical technology industries other receivables (-RM296k), government grants amortization (-RM884k), net forex
loss (+RM505k) and gain on fair value adjustment on marketable securities (-RM323k ).
Share price
RM Pts Dividend. 3Q/9MFY23: None (3Q/9MFY22: none). Usually divvy at the end of the FY.
UWC (LHS) KLCI (RHS)
6.00 1900
1800 QoQ. Sales fell by 48% to RM48m due to the impact of macroeconomic headwinds ,
5.00
1700
especially the semiconductor cyclical downturn. In turn, core net profit plunged by 88%
4.00 1600
1500
to RM3m attributable to lower EBITDA margin of 16% vs 2QFY23’s 31%.
3.00
1400
2.00 1300 YoY. Turnover shrank by 45% for the same reason mentioned above. Subsequently,
1200 core earnings experienced a larger decline of 89% attributable to the lower EBITDA
1.00
1100 margin (3QFY22: 48%) as well as higher D&A by 15%.
0.00 1000
Jun-22 Aug-22 Nov-22 Jan-23 Mar-23 Jun-23
Historical return (% ) 1M 3M 12M YTD. Revenue was lower by 4% to RM232m mainly due to the weakness in
Absolute -2.7 -11.2 -3.3 semiconductor. Bottom line contracted by 29% to RM52m due to higher staff cost and
Relative 13.8 2.8 16.4 D&A.

Stock information Sales breakdown. For 3QFY23, semi: 59% (2QFY23: 69%); life science/medical: 29%
Bloomberg ticker UWC MK (23%); and others: 12% (7%).
Bursa code 5292
Issued shares (m) 1,101
Order book was lower by 11% QoQ from RM135m to RM120m with the split of semi:
Market capitalisation (RM m) 3,226
3-mth average volume (‘000) 827 70%, life science/medical: 23% and others: 7%.
SC Shariah compliant Yes
F4GBM Index member N/A Outlook. It remains optimistic towards both its business and the industries in which it
ESG rating  operates in for the coming years. UWC has initiated the construction of a new site in
Batu Kawan with cleanroom facility to cater for front-end semiconductor manufacturing
Major shareholders as well as EV projects. It also has invested to construct a new fabrication site in Taiping
UWC Capital 50.2% and is planning for another warehouse facility in Batu Kawan to expand its production
Dato’ Ng Chai Eng 7.5% capacity. In life science/ medical, it is engaging in various project transfers with
Lau Chee Kheong 7.5%
customers to secure more full-box-build jobs.
Earnings summary
Forecast. After tweaking our model based on the deviations mentioned above, FY23-
FYE (Jul) FY22 FY23f FY24f
PATMI – core (RM m) 99.4 62.3 101.1 24 core PATAMI were lowered by 38% and 9%, respectively.
EPS – core (sen) 9.0 5.7 9.2
P/E (x) 32.5 51.8 31.9 Reiterate HOLD with a lower TP of RM3.12 (previously RM3.45), reflecting the
downward earnings revision. Our TP is pegged to unchanged PE multiple of 34x of
FY24 EPS. At current juncture, we think the risk-reward is fair despite the ongoing
trade intensity may eventually benefit UWC which provides a one-stop solution as
more companies shift productions out of China to avoid import tariffs.

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UWC l Results Review: 3QFY23

Financial Forecast
All items in (RM m) unless otherwise stated
Income statement Quarterly financial summary
FYE Jul FY21 FY22 FY23f FY24f FY25f FYE Jul 3Q22 4Q22 1Q23 2Q23 3Q23
Revenue 285.0 345.6 283.0 375.4 442.5 Revenue 87.3 103.1 92.1 91.9 47.7
COGS (158.0) (190.4) (183.4) (224.6) (260.3) COGS (45.3) (59.4) (50.4) (63.1) (40.0)
EBITDA 127.0 155.2 99.6 150.8 182.2 EBITDA 42.0 43.7 41.7 28.8 7.7
D&A (cum) (12.7) (15.6) (18.8) (20.7) (23.0) D&A (4.0) (4.2) (4.4) (4.6) (4.6)
EBIT 114.3 139.7 80.8 130.2 159.2 EBIT 38.0 39.5 37.3 24.2 3.1
Net Interest Income (cum) 0.5 0.1 0.1 1.2 1.3 Net Interest Income (0.0) 0.0 0.1 0.5 0.8
Associates 0.0 0.0 0.0 0.0 0.0 Associates 0.0 0.0 0.0 0.0 0.0
PBT 114.8 139.7 80.9 131.3 160.5 PBT 38.0 39.6 37.5 24.8 3.9
Tax (23.3) (33.0) (18.6) (30.2) (36.9) Tax (9.3) (9.6) (8.3) (6.0) 0.4
Net Profit 91.5 106.8 62.3 101.1 123.6 Net Profit 28.7 30.0 29.2 18.8 4.3
MI 0.0 0.2 0.0 0.0 0.0 MI 0.0 0.1 0.0 0.3 0.4
PATAMI 91.5 106.9 62.3 101.1 123.6 PATAMI 28.7 30.1 29.3 19.1 4.7

Exceptionals (cum) (2.0) (7.5) 0.0 0.0 0.0 Exceptionals (1.4) (4.2) (6.7) 7.3 (1.6)
Core PATAMI 89.5 99.4 62.3 101.1 123.6 Core PATAMI 27.3 26.0 22.6 26.4 3.2

Basic Shares (m) 1,101.0 1,101.0 1,101.0 1,101.0 1,101.0 Basic Shares (m) 1,101.0 1,101.0 1,101.0 1,101.0 1,101.0
Rep EPS (sen) 8.3 9.7 5.7 9.2 11.2 Rep EPS (sen) 2.6 2.7 2.7 1.7 0.4
Core EPS (sen) 8.1 9.0 5.7 9.2 11.2 Core EPS (sen) 2.5 2.4 2.0 2.4 0.3
Core FD EPS (sen) 8.1 9.0 5.7 9.2 11.2 Core FD EPS (sen) 2.5 2.4 2.0 2.4 0.3

Balance sheet Valuation Ratios

FYE Jul FY21 FY22 FY23f FY24f FY25f FYE Jul FY21 FY22 FY23f FY24f FY25f
Cash 71.7 39.6 141.3 153.9 188.7 PER (x) 35.2 30.2 51.8 31.9 26.1
Receivables 86.7 173.0 116.3 154.3 181.8 Core PER (x) 36.0 32.5 51.8 31.9 26.1
Inventories 53.4 64.3 60.3 73.8 85.6 FD PER (x) 36.0 32.5 51.8 31.9 26.1
Investment 0.1 0.1 0.1 0.1 0.1 DPS (sen) 1.7 2.9 1.7 2.8 3.4
PPE 126.6 159.6 169.1 186.0 207.2 Net DY (% ) 0.6 1.0 0.6 0.9 1.1
Intangibles 0.0 0.0 0.0 0.0 0.0 Book/share (sen) 27.7 36.0 40.0 46.4 54.3
Other Assets 20.9 20.9 20.9 20.9 20.9 P/Book (x) 10.6 8.1 7.3 6.3 5.4
Total Assets 359.4 457.5 508.1 589.0 684.4 FCF/share (sen) 4.2 1.4 10.9 3.9 6.5
Payables 31.0 38.3 45.2 55.4 64.2 FCF yield (% ) 1.4 0.5 3.7 1.3 2.2
ST borrowings 1.5 1.1 1.1 1.1 1.1 Mkt Cap 3,225.9 3,225.9 3,225.9 3,225.9 3,225.9
LT borrowings 1.1 1.2 1.2 1.2 1.2 Net Cash(Debt) 69.1 37.3 139.0 151.6 186.4
Other Liabilities 21.0 19.3 19.3 19.3 19.3 EV 3,156.9 3,188.7 3,086.9 3,074.3 3,039.5
Total liabilities 54.6 60.0 66.9 77.0 85.8 EV/EBITDA (x) 24.9 20.5 31.0 20.4 16.7
Shareholders' Funds 304.7 396.3 440.0 510.8 597.3 ROE (% ) 29.4 25.1 14.2 19.8 20.7
MI (BS) 0.1 1.2 1.2 1.2 1.2 Current Ratio (x) 6.5 7.0 6.9 6.8 7.0
Total S/H Equity 304.8 397.5 441.2 512.0 598.5 Quick Ratio (x) 4.9 5.4 5.6 5.5 5.7
Ttl Liab&S/H Funds 359.4 457.5 508.1 589.0 684.4 Interest Cover (x) 408.3 523.1 313.8 505.6 618.4

Cashflow Analysis Other Ratios

FYE Jul FY21 FY22 FY23f FY24f FY25f FYE Jul FY21 FY22 FY23f FY24f FY25f
EBITDA 127.0 155.2 99.6 150.8 182.2 Sales Growth (% ) 21.3 (18.1) 32.6 17.9
Tax Paid (19.4) (33.2) (18.6) (30.2) (36.9) EBITDA Growth (% ) 22.2 (35.9) 51.5 20.8
WC Changes (33.0) (89.1) 67.6 (41.3) (30.5) EBIT Growth (% ) 22.2 (42.2) 61.1 22.3
Other (0.3) 1.0 0.1 1.2 1.3 PBT Growth (% ) 21.7 (42.1) 62.3 22.2
CFO 74.3 34.0 148.7 80.4 116.1 Net Profit Growth (% ) 16.6 (41.6) 62.3 22.2
FCF 45.8 15.6 120.4 42.9 71.8 Core PATAMI Growth (% ) 11.0 (37.3) 62.3 22.2
CAPEX (CF) (28.6) (18.4) (28.3) (37.5) (44.3) EBITDA Margin (% ) 44.6 44.9 35.2 40.2 41.2
Acquisitions 0.0 0.0 0.0 0.0 0.0 EBIT Margin (% ) 40.1 40.4 28.5 34.7 36.0
Other (18.1) (26.9) 0.0 0.0 0.0 PBT Margin (% ) 40.3 40.4 28.6 35.0 36.3
CFI (46.7) (45.3) (28.3) (37.5) (44.3) Net Profit Margin (% ) 32.1 30.9 22.0 26.9 27.9
Dividend (11.0) (18.4) (18.7) (30.3) (37.0) Core PATAMI Margin (% ) 31.4 28.8 22.0 26.9 27.9
Debt changes (2.6) (1.5) 0.0 0.0 0.0 Net Debt/Equity (% ) Cash Cash Cash Cash Cash
Other (0.1) (1.0) 0.0 0.0 0.0 CAPEX/Sales (% ) 10.0 5.3 10.0 10.0 10.0
CFF (13.8) (20.8) (18.7) (30.3) (37.0)
Net Cashflow 13.9 (32.1) 101.7 12.6 34.8

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UWC l Results Review: 3QFY23

Figure #1 Quarterly results comparison

FYE Jul (RM m) 3QFY22 2QFY23 3QFY23 QoQ (%) YoY (%) 9MFY22 9MFY23 YoY (%)
Revenue 87.3 91.9 47.7 (48.1) (45.3) 242.5 231.8 (4.4)
EBITDA 42.0 28.8 7.7 (73.4) (81.7) 111.6 78.2 (29.9)
EBITDA Margin (% ) 48.1 31.4 16.1 46.0 33.8
EBIT 38.0 24.2 3.1 (87.4) (91.9) 100.1 64.6 (35.4)
PBT 38.0 24.8 3.9 (84.4) (89.8) 100.2 66.1 (34.0)
PAT 28.7 18.8 4.3 (77.1) (85.0) 76.8 52.3 (31.9)
Reported PATMI 28.7 19.1 4.7 (75.3) (83.6) 76.8 53.1 (30.9)
Core PATMI 27.3 26.4 3.2 (88.1) (88.5) 73.4 52.1 (29.1)
Basic EPS (sen) 2.6 1.7 0.4 (75.3) (83.6) 7.0 4.8 (30.9)
Adj basic EPS (sen) 2.5 2.4 0.3 (88.1) (88.5) 6.7 4.7 (29.1)
Bursa, HLIB Research

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Hong Leong Investment Bank Berhad (10209-W)

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Stock rating guidelines

BUY Expected absolute return of +10% or more over the next 12 months.
HOLD Expected absolute return of -10% to +10% over the next 12 months.
SELL Expected absolute return of -10% or less over the next 12 months.
UNDER REVIEW Rating on the stock is temporarily under review which may or may not result to a change from the previous rating.
NOT RATED Stock is not or no longer within regular coverage.

Sector rating guidelines

OVERWEIGHT Sector expected to outperform the market over the next 12 months.
NEUTRAL Sector expected to perform in-line with the market over the next 12 months.
UNDERWEIGHT Sector expected to underperform the market over the next 12 months.

The stock rating guidelines as stipulated above serves as a guiding principle to stock ratings. However, apart from the abovementioned quantitative definitions, other
qualitative measures and situational aspects will also be considered when arriving at the final stock rating. Stock rating may also be affected by the market capitalisation of
the individual stock under review.

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