Client ramp-ups to bolster UWC earnings in 4Q26

PETALING JAYA: CGS International (CGSI) Research is expecting UWC Bhd to register a stronger profit for its fourth quarter of financial year 2026 (4Q26), supported by an accelerated ramp-up from its largest front-end customer WFE 2 and back-end customer T, amid robust memory capital expenditure (capex) spending globally.

In a report, CGSI Research said the precision engineering group has had a better product mix from a higher contribution of semiconductors, and its higher utilisation rates have led to an improved operating leverage.

According to the research firm, UWC should see its profit coming in between RM31mil to RM40mil for 4Q26.

“Our core net profit excludes unrealised foreign-exchange (forex) losses and other one-off items.

“That said, we expect an even stronger first half of financial year 2027, supported by improved availability of engineers and foreign workers, which should enable a steeper production ramp-up for key customers,” the research house said.

CGSI Research said that it remains positive on the semiconductor’s medium to long-term prospects, given sustained artificial intelligence- or AI-driven demand and elevated capex commitments from hyperscalers, logic foundries and memory manufacturers.

In addition, the research firm pointed out after the launch of GPT-6 Astra – which is a competitive threat to incumbent Anthropic Fable 5.1 – competition among frontier large language model developers will intensify, thus continuing to support the investment into AI infrastructure.

“Hence, we expect the likely improvement in OpenAI’s annualised recurring revenue in the coming months to help bolster investor sentiment in the sector,” it said.

However, CGSI Research noted that near-term sentiment could still be susceptible to macro-driven volatility.

CGSI Research said, in a meeting with investors across 20 accounts, some of the key concerns that came up included potential headwinds from higher US Treasury yields and the US Federal Reserve’s (Fed) increasingly hawkish stance.

“Nevertheless, we note that market sentiment remained constructive the next day following the Fed’s 25 basis points rate hike.

“Hawkish commentary from Fed chairman Kevin Warsh on Sep 16, 2026, saw the Nasdaq and KLTEC Index gaining 1.6% and 1.4%, respectively, suggesting that the sector may have already meaningfully priced in policy tightening risk,” the research house explained.

CGSI Research said it will keep an “add” call on the stock with an unchanged target price of RM9.13.

“Our target price is still based on a 45 times financial year 2027 (FY27) to FY28 price-to-earnings ratio, backed by a three-year earnings per share compound annual growth rate of 48% over FY26 to FY29.

“We believe this is justified by UWC’s strong growth outlook, supported by its high quality customer base across wafer fab equipment or WFE and back-end testing,” the research house said.

CGSI Research noted that downside risks include management execution risk and adverse forex rates, while catalysts for the stock would be new customer acquisition and stronger-than-expected orders from customers.