UWC leads the tech pack

WITH the semiconductor upcycle well on its way, precision engineering companies on Bursa Malaysia seem to be on a tear. The handful of stocks in this sector now trade at an average historical price-to-earnings ratio (PE) of more than 50 times.

Leading the pack is UWC Bhd, the Penang-based group that is testament to the spillover effect of the large foreign direct investment the state has secured from global semiconductor players – UWC counts two global players who have major operations in Penang as key customers.

And business, especially in the higher margin-yielding front-end segment of the semiconductor sector, is booming.

“At this point of time, we are not worried about the orders. We are more worried about how we are going to prepare our capacity – expanding factories and bringing more talent on board – to keep up with demand,” UWC deputy group CEO Dr Matin Ng Chin Liang tells StarBiz 7.

It is, possibly, this potential high growth that has gotten investors to go gaga over the company – it trades at more than 100 times historical earnings and yet six research houses still have it as a “buy”.

UWC’s current price of RM5.50 has inched pretty close to the consensus target price of RM5.57 analysts ascribed to the stock, going by Bloomberg data.

Analysts are pegging a forward PE of 33 times to 35 times for UWC’s financial year ending July 31, 2027 (FY27).

They favour the group for its growing exposure to the front-end semiconductor segment, particularly its ability to undertake additional assembly work on top of traditional precision engineering work.

Ng is of the view that the current semiconductor upcycle could last longer than previous upcycles – potentially carrying on for another two to three years – driven by artificial intelligence (AI) infrastructure spending and surging demand for advanced chips and memory.

He says the current AI-driven semiconductor boom is still largely centred on infrastructure buildout, while widespread enterprise adoption of AI is still at an early stage.

“The group’s outstanding order book has expanded to RM250mil, up from around RM180mil a year ago. We are still at the early stage of the upcycle.

“Our previous peak outstanding order book was around RM200mil in 2022. Even at this early stage of the ramp-up, the outstanding order book has reached RM250mil and this number continues to grow.

“Without factoring in new customers, shipment volumes to some of our back-end automated test equipment customers have already almost doubled compared with the previous peak,” Ng says.

In fact, an “even stronger ramp-up” is expected for the group a few quarters from now, with growth likely to be “tremendous” compared to the current levels.

“In terms of how much we can deliver by the end of the year or a year from now, it depends on how quickly we can mobilise all the resources and beef up our capacity,” he says.

Evidently, tariff concerns and geopolitical tensions in the Middle East have done little to slow the semiconductor industry’s expansion momentum, with customers continuing to actively shift manufacturing activities into this region, including Malaysia.

Ng says such relocation trends are becoming increasingly structural and sticky, driven by the region’s cost advantages relative to the United States and Europe.

UWC currently operates across several manufacturing locations, including its headquarters in Batu Kawan, two factories in Taiping, one in Johor and another in Thailand.

The group is also expanding its Batu Kawan facility in phases to cater for rising demand from the semiconductor sector.

Ng notes the group’s facilities are almost 80% utilised, while its Batu Kawan expansion is about 70% completed. He adds that the company intends to double its capacity in the next one to two years in terms of land size.

According to Ng, much of UWC’s current growth momentum is the result of investments made over the past two years, even during one of the weakest periods for the semiconductor sector.

“The period of 2023 to 2024 was probably the weakest point of our organisation and yet we invested heavily, about RM260mil. After two years of investment, we are now only starting to see strong orders coming in from front-end customers that we already had since 2021,” he says.

The front-end semiconductor business contributes more than 30% of UWC’s revenue. Of this, around 80% comes from a single customer.

While companies like UWC do not reveal the name of their key customers, many believe it to be one of the multinational giants located in Penang.

Contributions from newer US and European customers for this segment are still “very minimal” as projects remain in qualification and early ramp-up stages.

“We got an additional three new wafer fab equipment customers on board, but they are still at the qualification stage. These customers could begin contributing more meaningfully in less than a year from now,” Ng says.

UWC also has a long-standing presence in the back-end semiconductor segment, where it continues to serve several high-profile test equipment customers.

The group is seeing strong momentum in memory-related test equipment amid rising AI-related workloads. Further upside could come if one of its customers successfully enters Nvidia Corp’s graphics processing unit testing supply chain.

Ng notes the technical requirements for such AI testing are more stringent compared with traditional semiconductor testing applications.

“When you talk about AI, Nvidia is the bull’s-eye for any solution. While our customers have managed to penetrate into the AI ecosystem, what is lacking now is mainly the capability of their equipment.

“Over the past few weeks, they have been actively upgrading their machines to better fulfil the requirements of the AI ecosystem,” he says.

UWC also caters to the life science and medical technology industries. This segment has taken a back seat in recent years, with its revenue contribution shrinking to around 10% in the first half of FY26.

The softer contribution is due to the normalisation from windfall gains the company enjoyed during the Covid-19 pandemic.

Excluding that period, the business has largely maintained a “more stable and more consistent” revenue profile, with Ng expecting contributions from the segment to remain at current levels.

“We have onboarded a few new customers for the life science and medical technology segment, but we do not expect these businesses to deliver the same kind of momentum as the semiconductor industry,” he says.