Analysts from Maybank Securities and UOB Kay Hian have upgraded their calls on UMS Holdings 558 to “hold” from “sell” even though the company’s results for the 3QFY2024 ended Sept 30 came in below consensus estimates.
“The outlook [for UMS] is still cloudy, but [we] upgrade [UMS] to ‘hold’ as earnings have likely bottomed,” says Maybank analyst Jarick Seet.
UMS Holdings, now known as UMS Integration, reported 3QFY2024 earnings of $10.4 million, 32% lower y-o-y but 11.5% higher q-o-q.
3QFY2024 revenue fell by 9% y-o-y but grew by 16.1% y-o-y to $64.9 million.
Despite the q-o-q improvement, Seet notes that the growth was still “not enough”.
“UMS is still facing labour shortages, causing ramp-up of orders to be slower than expected,” he explains. “However, it’s expecting $50 million of orders in FY2025 from its new customer, but execution will be a key hurdle.”
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At this point, UMS should see improved earnings in the years ahead, especially with its new customer finally commencing production.
“The China+1 thematic, UMS’s dual-listing in Malaysia and the ramp up of its new major customer could be catalysts going forward,” says Seet.
Meanwhile, the analyst has lowered his earnings estimates for the FY2024 and FY2025 by 3.8% and 3.4% respectively. He has also rolled his target price estimate forward to 14 times UMS’s FY2025 earnings, resulting in a higher target price of $1.03 from 85 cents previously.
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Within the industry, Seet prefers Frencken for its more positive outlook.
UOB Kay Hian analyst John Cheong has also trimmed his earnings estimates for the FY2024, FY2025 and FY2026 by 3%, 5% and 7% respectively after lowering his revenue estimates for the three years by 2%, 2% and 3% respectively.
After all, UMS’s 3QFY2024 earnings disappointed expectations while its 9MFY2024 earnings only met 69% of his full-year estimates. “This was due to weaker global chip demand and a general business slowdown,” notes Cheong.
Like Seet, Cheong believes UMS’s new key customer may take some time to achieve meaningful earnings contributions for the company.
“The ramp-up of its new customer has been slower than expected due to labour constraints and execution issues as the operation teams at both ends are new. As a result, UMS’s previous revenue expectation of US$30 million ($40.1 million) from the new customer appears to be harder to achieve,” Cheong writes.
“However, UMS remains prudent in managing market risks and is investing prudently across its key business segments to support its long-term growth plans,” he adds.
Cheong also likes that UMS’s performance in the past six months reinforced its resilience and ability to tap on its twin growth engines, semiconductors and aerospace, and propel the company forward.
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“Despite the ongoing market turbulence, political tensions and challenging global chip industry, UMS’s performance improved as it did better in 2QFY2024 compared with 1QFY2024,” Cheong notes. “UMS’s gross margins continued to grow as it enhanced its product mix and scaled up its business with more orders from a new major customer in Malaysia. UMS’s diversification into the aerospace business has also lifted both sales and earnings as air travel growth has continued to accelerate worldwide.”
Like Seet, Cheong has increased his target price to 95 cents from 90 cents previously. His new target price is based on a P/E-based valuation of 15 times UMS’s FY2025 earnings per share (EPS) estimates and pegged to 1 standard deviation (s.d.) above UMS’s historical mean P/E.
Shares in UMS closed 2 cents higher or 1.92% up at $1.06 on Nov 12.
