KUALA LUMPUR (Sept 25): Hong Leong Investment Bank (HLIB) upgraded UWC Bhd (KL:UWC) from 'hold' to 'buy', while maintaining its target price (TP) at RM2.76, citing that "the worst is over" for the semiconductor firm.
HLIB also believes the recent share price correction presents a favourable risk-reward scenario.
"The ongoing trade war may eventually benefit UWC, which provides a one-stop solution, as more companies shift production out of China to avoid import tariffs," said HLIB in a note on Wednesday.
The house said its TP is pegged to an unchanged price-earnings multiple of 34 times calendar year 2025 earnings per share.
The optimism was despite UWC's core profit after tax and minority interest of RM13 million for the financial year ended July 31, 2024 (FY2024), which showed a decline of 76% year-on-year (y-o-y) and came short of both HLIB's and street estimates, mainly due to a lower-than-expected earnings before interest, tax, depreciation and amortisation margin.
Nevertheless, HLIB noted that the company reported a sequential increase in its order book to RM140 million, with the semiconductor front-end accounting for 26% to 27% of the total.
Y-o-y, turnover expanded by 90%, driven by a robust recovery in the semiconductor industry and contributions from recently acquired subsidiaries.
Core earnings saw an almost fourfold increase, despite higher depreciation and amortisation (D&A) and an effective corporate tax rate.
Year-to-date, revenue weakened by 9%, as strength in other segments was insufficient to offset the drag from the semiconductor sector.
Consequently, the bottom line fell by 76%, impacted by higher D&A and the effective corporate tax rate.
For FY2024, 48% of sales came from semiconductors (down from 66% in FY2023), followd by life science/medical at 28% (up from 25%), and others at 24% (up from 9%).
The research firm cited the company's focus on expanding its capacity for front-end semiconductor manufacturing and electric-vehicle projects.
UWC aims to complete Phase 2 of its new facility in the Batu Kawan Industrial Park by December, with the construction of a new clean room for its front-end business expected to be finished by next year.
UWC shares gained 10 sen or nearly 5% to RM2.18 in early trade on Wednesday, valuing the company at RM2.4 billion.