UWC: Solid Performance on Semiconductor Recovery, Target Price Raised

UWC Berhad delivered strong financial results for FY25, with earnings largely in line with analyst expectations. The robust performance was primarily driven by a recovering semiconductor sector and significant operational efficiencies. The investment bank, PhillipCapital, has reiterated its “BUY” recommendation for the stock, raising its target price on an optimistic future outlook.

Performance Review

For the full financial year 2025 (FY25), UWC Berhad reported a substantial 55% year-on-year increase in revenue to RM386 million. The company’s EBITDA margin also saw a healthy improvement, rising by 5.5 percentage points year-on-year to 20.4%, mainly attributable to stronger sales within the higher-margin semiconductor segment. This segment alone contributed approximately 20% of the group’s total revenue.

The fourth quarter of FY25 (4QFY25) was particularly strong, with core net profit surging 44% quarter-on-quarter to RM18.6 million. Headline net profit also saw a significant jump of 107% quarter-on-quarter to RM16.5 million. Overall, UWC’s full-year results accounted for 104% and 99% of PhillipCapital’s and the broader market’s estimates, respectively, indicating performance largely met or slightly exceeded expectations.

Key Drivers and Efficiencies

The impressive earnings growth was a result of stronger sales across all key segments, spearheaded by the semiconductor division, followed by life science and other sectors. Operational improvements, including a margin uplift, the absence of consultancy fees, and stable production yields, further bolstered profitability. Additionally, the company benefited from a favorable tax impact in 4QFY25, stemming from reinvestment allowances related to investments in new machinery.

Operational Context and Challenges

Despite the strong performance, the group’s utilisation rate remained steady at 70%, suggesting there is still room for further operational leverage and capacity expansion. PhillipCapital highlighted several potential downside risks that could impact future performance. These include a weaker-than-expected demand recovery in the market, a sharp appreciation of the Malaysian Ringgit against other currencies, and the possibility of weaker-than-expected margins.

Future Outlook and Investment Rating

Looking ahead, UWC’s order book has expanded to RM180 million, up from RM160 million in 3QFY25. This order book is comprised of 35% from the front-end segment and 49% from a recovering back-end segment, signaling continued demand. Earnings recovery is anticipated to gain further traction, supported by continued margin uplift.

PhillipCapital has maintained its “BUY” recommendation for UWC Berhad and has increased its 12-month target price to RM3.70, up from the previous RM2.60. This revised target price is based on a higher target Price-to-Earnings (PE) multiple of 42x on CY26E EPS, close to its 2-year mean. The firm remains upbeat on the stock, expecting its share price to continue to re-rate in anticipation of positive earnings surprises driven by improved production efficiency.