CGS International analyst William Tng has kept his “add” call on UMS Holdings 558 ahead of its results for the 1QFY2024 ended March 31.
For the quarter, UMS’s net profit is likely to have declined by 19.4% y-o-y and 10.7% q-o-q to $14.0 million, says Tng, who expects the group to report its results on May 10.
Following the “weak” quarterly performance, UMS’s share price is likely to bottom out as well, Tng adds.
For the FY2024, Tng also sees “some downside risk” to his net profit estimate of $79.0 million as well as the $77.9 million forecasted by the Bloomberg consensus.
“In its 4QFY2023 results briefing, UMS Holdings’ management had highlighted that the semiconductor sector could still see some near-term softness due to surplus inventory issues. We note that UMS’s key customer (Applied Materials or AMAT) had earlier brought forward some orders planned for 1QFY2024 to 4QFY2023, while AMAT guided for its 2QFY2024 (1QFY2024 for UMS) revenue for its semi systems business to decline 2.2% q-o-q and 3.6% y-o-y,” says Tng in his May 1 report.
As such, he has reduced his revenue forecasts for the FY2024 to FY2026 by 4.5% as the group’s pace of recovery and progress with its new customer may be slower than expected.
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For the FY2024, Tng’s earnings per share (EPS) estimates have also been cut by 11.2%; his EPS estimates for the FY2025 and FY2026 have each been cut by 4.2%.
That said, Tng still sees some positivity for the 9MFY2024 to the FY2026.
In its annual report for the FY2023, UMS’s management remained optimistic about the outlook of its business with the group’s new 300,000 sq ft production facility at the Penang Science Park North successfully completed. The facility is focused on medium and large format products, special processes and modular assembly of products for UMS’s new customer.
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“The plant has commenced volume production from March 2024 for this new customer, and UMS still expects an uptick in order flow in the coming months,” says Tng. “Our analysis suggests that UMS’s customers’ inventories (though still high) are being depleted.”
Despite the cut in his EPS estimates, Tng sees the possibility of UMS’s EPS growing to an average 12.0% over the FY2024 to FY2026 with the recovery of the semiconductor industry and after traction from its new customer.
As such, the analyst has kept his valuation of a P/E multiple of 14.2 times on his reduced FY2025 EPS forecast. This is 2 standard deviations (s.d.) above UMS’s 10-year averagr from FY2014 to FY2023.
Accordingly, Tng’s target price has been reduced to $1.68 from $1.76 previously.
To him, re-rating catalysts can come in the form of securing more new customers and further orders from new customers for its new Penang plant as well as the return of orders for aircraft components. On the other hand, negative impact from UMS’s key customer’s loss of sales in China and a slower-than-expected progress in its business with its new customer are downside risks.
As at 12.41pm, shares in UMS are trading 2 cents higher or 1.54% up at $1.32.
