UWC (5292): UWC BERHAD rides on semiconductor and medical technology boom
UWC Bhd has consistently delivered double-digit earnings growth besides a steadily-rising net profit margin.
The group, which is primarily involved in fabrication and full turnkey assembly services for automated test equipment, is also one of the country’s best initial public offerings in recent years.
Since its listing in July 2019, the stock has surged by over 13 times, after factoring in the 1-for-1 bonus issue completed on Feb 18,2021.
UWC is riding on the demand boom for semiconductors and medical technology, with both segments collectively contributing about 93% of total revenue in the first half ended Jan 31.
Over the past few quarters, UWC says it has seen increasing enquiries and orders from existing and potential customers, both locally and from its global headquarters.
To meet the growing demand, the group has been continuously expanding its capacity.
It has identified new factories to be leased and would be adding more machinery.
According to UWC executive director and group CEO Datuk Ng Chai Eng, (pic below) there may also be a need to increase capital expenditure moving forward, based on the current demand.
Looking ahead, Ng says the group will undertake more higher-margin products.
“We are currently taking our first step into the front-end semiconductor where we expect higher margins.
“We have completed our class 10,000 cleanroom which will be fully-utilised for our front-end venture.
“UWC is not in the volume game. We target high range and high value products, thus generally we enjoy higher margins, ” he tells StarBizWeek.
Another key long-term strategy for UWC is its diversification into automotive and telecommunications business such as the 5G technology, according to Ng.
Recently, the group bagged a contract to manufacture the world’s highest frequency 5G millimetre-wave test chamber for one of its major customers.
The 5G tester is geared towards the automotive industry, particularly for vehicle-to-vehicle connectivity, as well as for 5G smart devices such as smartphones and tablets.
While UWC did not name the customer that awarded the contract, it said the customer’s “solutions optimise networks and bring electronic products to market faster and at a lower cost with offerings from design simulation to prototype validation, manufacturing test, optimisation in networks and cloud environments”.
Based on a check online, the profile description appears to match with Keysight Technologies Inc, a New York Stock Exchange-listed electronic measurement company with a US$4.2bil (RM17bil) revenue in 2020. In 2014, Keysight was spun off from Agilent Technologies.It is noteworthy that UWC’s listing prospectus stated that Agilent contributed 26% of its total revenue in the financial year ended July 31,2018 (FY18).
“This is not our first project addendum for 5G related equipment, but this is the first project addendum to box build this 5G test equipment.
“However, we have been working on the development of this product for more than 10 months with our client.
“We have various semiconductor and life science products in development with our clients. As mentioned above, the development stage takes time, therefore we will only announce once the products have been qualified, ” says Ng.
Meanwhile, UWC’s life sciences and medical technology segment has been a beneficiary of the Covid-19 pandemic as it was part of the global supply chain to battle against the virus outbreak.
The group has been delivering virus extraction machines to its clients, catered for utilisation in labs.
In addition to that, it is also involved in developing an equipment to test on the mutated Covid-19 strands.
“We do not provide forecasts for financials. However, we do not see a slowdown in orders from our clients in battling against this pandemic, ” Ng says.
Currently, UWC’s order book stands at RM100mil, with an earnings visibility of three months.
“The lifecycle of the equipment that we build is usually for three years or longer.
“Through the research and development process undertaken with the client, usually there will be enhancements to the equipment to prolong the lifecycle of each product, ” says Ng.
The semiconductor industry is the biggest contributor to UWC’s revenue, with a share of 73% in FY20.
The life science and medical technology segment, on the other hand, contributed 18%.
It is noteworthy that UWC’s top five major clients contributed about 77% of its revenue in FY20, hence raising concerns on whether the group is sitting on a narrow topline base with high-dependency on a few clients.
In response to this, Ng says UWC has a policy that all clients will have a revenue cap at 35% to its total revenue.
“In order to ensure this cap is met, we will have to grow all our clients’ contributions across the board, ” he said.
When asked what sets UWC apart from other rivals in the industry, Ng points out that the group is one of the few integrated solutions and assembly services providers that is competing with larger foreign contract manufacturers.
“As we are an end-to-end solutions provider. We are able to provide efficient traceability of product defects if any to our clients and immediately rectify any problems, ” he says.
In the first half ended Jan 31, UWC’s net profit almost doubled year-on-year (y-o-y) to RM48.95mil, with a net profit margin of 32.8%.
Revenue was up by 46.6% y-o-y to RM149.31mil, contributed by stronger sales from the semiconductor as well as life science and medical technology segments.Currently, UWC has a price-to-earnings of 83.77 times, with a dividend yield of 0.16%.