UMC: Earnings Performance Meets Expectations, Target Price Increased on Strategic Outlook

Core net profit for the first quarter of fiscal year 2026 (1QFY26) was reported at RM2 million, reflecting an 8% year-on-year decline but aligning with both internal and consensus estimates. Revenue for the quarter saw a 9% year-on-year increase to RM14 million, primarily propelled by robust contributions from the distribution segments. PhillipCapital has maintained its “BUY” rating, raising its 12-month target price to RM0.51 from the previous RM0.45.

1QFY26 Performance Overview

The revenue growth in 1QFY26 was significantly bolstered by a 24% year-on-year surge in the distribution segments. This improvement was largely attributed to heightened demand for medical devices from public and private hospitals, alongside strong performance from healthcare service providers. Conversely, the manufacturing segment experienced a 20% year-on-year decline, partially offsetting the gains. On a sequential basis, while overall revenue rose by 15% quarter-on-quarter, the manufacturing segment saw a 24% decline, impacting overall profitability. The EBITDA margin consequently narrowed by 11.4 percentage points quarter-on-quarter, settling at 23.1%, primarily due to higher operating costs. Despite the mixed segment performance, the reported core net profit of RM2 million was well within expectations, representing 21% and 22% of the full-year forecasts by PhillipCapital and the broader consensus, respectively.

Strategic Growth and Outlook

Management’s expansion plan remains on schedule, with the manufacturing segment targeting full capacity of 12 million units per year by the first quarter of calendar year 2026. PhillipCapital anticipates an improvement in core net profit during the second half of FY26, driven by higher utilisation rates and the implementation of a new Water-for-Injection (WFI) system, which is expected to reduce sterilisation costs.

The revised target price of RM0.51, up from RM0.45, is based on rolling forward the valuation base year to FY27E and applying a lower target price-to-earnings (PE) multiple of 17x, which is one standard deviation below its 3-year mean. This adjustment reflects the slower earnings growth momentum observed. PhillipCapital reiterated its “BUY” recommendation, citing the robust manufacturing segment growth trajectory, which benefits from doubling capacity and strong global demand, and a healthy pipeline of new products poised to broaden the revenue streams. Current valuations are considered undemanding, trading at approximately two standard deviations below its 3-year mean. Key downside risks include a potential slowdown in demand for medical equipment, operational disruptions, and license losses.