Over the years, UWC Bhd (UWC) has grown from a trading company supplying wire cut machines to an organisation which provides an integrated range of services. Fabrication processes and precision machining to shape sheet metals into desired components, finishing processes to protect against corrosion or any damage to the surface, to final steps such as assembly and testing before shipping to its customers in the semiconductor, life science and medical technology, and heavy equipment industries, among others are its key activities. The group markets its products and services in both the local and foreign markets, where the majority of its customers are multinational corporations (MNCs) with operations based in Malaysia as well as overseas.
Apart from enhancing production capacity as well as efficiency, UWC intends to automate some of the repetitive and laborious tasks in its production processes and implement an automated material handling system, besides expanding its service offerings to plating surface treatment services post-IPO. We derive a fair value of RM0.96 based on a c.13x PE multiple to its FY2020F EPS of 7.4 sen. The IPO is expected to raise approximately RM57.4m from the issuance of 70.0m new shares. Besides utilising 56.0% of the proceeds for the purchase of new CNC machines as well as industrial robotic arms and material handling system, 5.0% of the proceeds are allocated for working capital that are earmarked for long term future growth.
Growth drivers. UWC’s growth will be focused on i) expansion of production capacity and improvement in production efficiency, ii) expansion of service offerings to plating surface treatment services, and iii) automation of some of the repetitive and laborious tasks in its production processes.
Competitive strengths. UWC’s competitive strengths include: i) provision of integrated engineering supporting services, ii) continuous investment in advanced machinery and equipment, iii) proven track record and relationship with customers, and iv) adherence to stringent international quality standards.
Catalysts. Key drivers may include: i) evolving technological trends, ii) strong government support towards the machinery and equipment industry and end user markets through growth-promoting Third Industrial Master Plan, iii) growing and aging population, iv) steady growth in the global economy, and v) trade protectionism by major economies (should the trend not prolong).
Key risks. Key downside risks, among others, include i) competition from other industry players, ii) fluctuations in foreign exchange rate, iii) fluctuations in the prices of raw materials, iv) dependency on major customers, and v) absence of long-term contracts.
Source: PublicInvest Research - 28 Jun 2019