KUALA LUMPUR: UWC Bhd's second-quarter results for the period ending January 31, 2024 (2Q24) missed expectations, representing only eight per cent of Hong Leong Investment Bank Bhd's (HLIB) and six per cent of the consensus full-year forecast.
HLIB noted that the integrated engineering solutions provider reported a revenue of RM61 million and a core net profit of RM4 million in 2Q24, which lifted the first half of financial year 2024 (1HFY24) to RM5 million.
"The shortfall was due to lower-than-expected revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin.
"One-off items in 1HFY24 included impairment losses in trade and other receivables (+RM303,000), government grant amortisation (-RM577,000), forex gain (-RM3.4 million), and gain on fair value adjustment on marketable securities (-RM523,000)," it said in a note.
As such, HLIB has maintained a "hold" call on UWC with a lower target price of RM2.99 from RM3.24 previously, reflecting its downward earnings revisions.
The investment bank added that its target price is based on an unchanged price-to-earnings (PE) multiple of 34 times the earnings per share (EPS) for calendar year 2025 (CY25).
"At the current juncture, we think the risk-reward is fair despite the ongoing trade intensity, which may eventually benefit UWC, which provides a one-stop solution as more companies shift production out of China to avoid import tariffs," it said.
HLIB has also revised UWC's core profit after tax and minority interest (PATAMI) for fiscal years 2024, 2025, and 2026, decreasing by 24 per cent, 16 per cent, and increasing by one per cent, respectively.
Looking ahead, UWC remains optimistic about its business outlook and has started to see signs of recovery.
It is expanding capacity for front-end semiconductor manufacturing businesses and electric vehicle (EV) projects.
The company targets to complete Phase 2 of its new facility in Batu Kawan Industrial Park by December 2024, while the new Taiping facility is ready for fabrication work.
It has also commenced mass production for one of its EV battery tester models and expects two more in the pipeline to materialise in 2HFY24.