Analysts are mixed on UMS Holdings 558 after the company reported earnings of $68.5 million for the FY2023 ended Dec 31, 2023, 34% lower y-o-y.
DBS Group Research analyst Ling Lee Keng has raised her target price to $1.84 from $1.55 while keeping her “buy” call as she sees UMS’s outlook to be rosy on many fronts.
UMS, which is an integrated original equipment manufacturer (OEM) for front-end semiconductor equipment, rides on the long-term growth trend for the semiconductor industry thanks to an industry-wide structural change.
The industry is also expected to see a strong recovery in 2024 with firms like Gartner and SEMI expecting rebounds during the year. Gartner is predicting to see revenue growth of 20.4% y-o-y in 2024 after a projected 12.3% drop in 2023 while SEMI is expecting the rebound to go through to 2026 with wafer shipments setting new highs.
UMS’s key customers have also given positive guidance with the surge in demand for artificial intelligence (AI) and internet of things (IoT).
UMS should also see higher order flow in the coming months with its newly-completed plant commencing volume production from March 2024.
“On the back of the China-US trade tensions, more companies are looking to diversify their manufacturing footprints. The completion of the new plant in Penang offers new growth opportunities,” says Ling.
Based on her estimates, UMS’s 4QFY2023 results, as well as its overall results, were in line with expectations.
Ling’s new target price is based on a higher P/E of 15 times, near UMS’s previous peak in 2022 and up from 13 times on the back of an improving outlook.
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“We have accounted for the enlarged share capital with the recent completion of the placement of new shares to raise $51.6 million,” she writes.
Meanwhile, Maybank Securities analyst Jarick Seet has downgraded his call to “hold” from “buy” as UMS’s FY2023 earnings missed his estimates slightly.
With UMS’s 4QFY2023 results weaker than expected, Seet sees that the trend has also flowed into a weaker 1QFY2024 for the company due to the pull in of orders into the 4QFY2023.
“1QFY2024 should see some weakness as [UMS’s] key customer has inventory build-up of about one to two months while demand from the existing customer is likely to be flattish in FY2024,” he writes.
That said, UMS’s new customer expectations remain unchanged with the company expecting a revenue contribution of US$30 million ($40.4 million) from it in FY2024.
Seet also expects to see an uptick in order flow in coming months with UMS’s new production facilities in Penang completed and one of its new factories now operational.
“We see potential upside to the US$30 million contribution in FY2024 if the semicon sector picks up in 2HFY2024,” he says.
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Despite the downgrade, the analyst believes in UMS’s long-term prospects with the company looking to acquire a plot of land in Malaysia to build a second plant for its new customer. However, it is likely to face short-term headwinds like a weak 1QFY2024 and flattish demand from its key customer for 2024.
In addition to his downgrade, Seet has also lowered his target price to $1.41 from $1.49, pegged to 14 times UMS’s FY2024 P/E.
As at 10.04am, shares in UMS are trading 7 cents lower or 4.86% down at $1.37.
