Strong FY26 earnings growth seen for UWC

PETALING JAYA: UWC Bhd’s ongoing sequential improvement is set to bolster investor confidence in its ability to deliver strong financial year 2026 (FY26) earnings growth, supported by increased order flow from front-end (FE) customers.

Hong Leong Investment Bank (HLIB) Research said the group’s fourth quarter of FY25 (4Q25) revenue rose to RM109mil, driving core profit after tax to RM21mil, above its and consensus expectations (RM14mil to RM16mil).

“This brings FY25 core earnings to RM55mil, beating our and consensus full-year estimates by 14% and 12%, respectively.

The upside was driven by better-than-than expected margin expansion and a favourable tax credit from reinvestment allowance. Major one-off items in FY25 include foreign exchange losses (minus RM8.7mil) and impairment losses in trade receivables (minus RM5.8mil),” the research house said in a report recently.

On a quarter-on-quarter (q-o-q) basis, HLIB Research said sales in 4Q25 climbed 14% q-o-q to RM109mil, underpinned by stronger order loading in the semiconductor division, led by key FE customers.

Further, improving yields and operating leverage lifted normalised earnings before interest and taxes margins to 16% (from 15.1% in 3Q25).

This was further boosted by a favourable tax impact of RM2.5mil, stemming from the recognition of reinvestment allowances as profitability in the FE segment increased (where the bulk of this year’s RM100mil capital expenditure was deployed). Collectively, these factors drove core profit after tax sharply higher to RM21mil, up 64% q-o-q.

UWC’s orderbook increased to RM180mil (from RM160mil a quarter ago) with the split between semi: 84% and life science: 14%. Notably, FE semiconductor equipment manufacturers accounted for about 35% of the orderbook.

“We expect the ongoing sequential improvement to bolster investor confidence in UWC’s ability to deliver strong FY26 earnings growth (up by 72% year-on-year (y-o-y), by our estimate), supported by increased order flow from FE customers once production reliability at scale is proven,” HLIB Research said.

The research firm added that margin expansion should follow the volume ramp, underpinned by higher operating leverage, improved process efficiency, and lower rework/defect costs.

“Customer L’s supply chain localisation in Malaysia should provide a steady pipeline of new product qualifications, even as global semicap spending trends remain fluid.

“Meanwhile, the outlook for back-end Customer T (memory test equipment) is poised for a positive inflection from the second half of 2025, suggesting higher weekly orders for UWC in the coming quarters,” HLIB Research said.

The research house kept its FY26 to FY27 earnings unchanged, as it has already factored in meaningful margin recovery.

“That said, there is potential upside should the effective tax rate stay lower (we assume 20% in FY26 to FY27) due to the tax incentive from reinvestment allowance.

“We see successful execution in scaling FE orders and margin expansions as key re-rating catalysts,” HLIB Research said.

HLIB Research maintained its “buy” call with an unchanged target price of RM3.30 based on a 34 times price to earnings ratio 2026 earnings per share.