Maybank Securities analyst Jarick Seet is keeping his “buy” call on UMS Holdings 558 (UMS) at a raised target price of $1.49 from $1.44 previously, as he anticipates a bright outlook for the company’s 4QFY2023 ended Dec 31, 2023 results.
For the period, Seet expects UMS’s revenue and profit after tax and minority interests (patmi) to come in at $80 million and $18 million respectively, thanks to higher y-o-y margins from the renewed agreement with its key customer.
He writes: “Going forward, we expect orders to pick up gradually with its key customer and accelerate in 2HFY2024. In addition, it (UMS) started to ramp up production for its new customer and we expect $30 to $50 million of revenue for FY2024.”
In addition, UMS has also raised about $50 million through a 40 million share placement at $1.29, which was 2.55 times oversubscribed and will provide ample cash for expansion.
With the semiconductor (semicon) industry only seeing a gradual recovery amid high inventory levels, Seet notes that higher average selling prices (ASP) will help UMS’s upcoming results, with the renewed agreement leading to a continued pick up in margins.
The company has also struck up an agreement in principle with Nasdaq-listed LAM Research, a fellow semiconductor (semicon) manufacturer, for a three-year contract with a renewal option.
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“UMS still expects a $30 million revenue contribution in FY2024 and $300 million top-line contribution per annum (p.a.) in the next three to five years,” writes Seet, adding that there could be potential upside if the semicon industry picks up in the second half of this year.
Believing in its benefitting from the industry’s gradual recovery this year, UMS has raised its dividends by 20% to 1.2 cents for 2QFY2023 and 3QFY2023.
The analyst notes that this is positive for shareholders and he “can expect” a yield of 4.3% for FY2024, writing: “ We expect [that] FY2023 was the bottom for UMS and better years are ahead due to the new customer’s ramp up.”
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Upside factors noted by Seet include a stronger-than-expected revenue momentum following capacity expansion in FY2022, better-than-expected contributions from UMS’s subsidiaries Kalf Engineering, Starke and JEP., and lastly, a better-than-expected cost control, which in turn supports margins.
Conversely, downside factors include higher-than-expected labour costs, or if UMS faces difficulties expanding its workforce to cope with strong order momentum, lower-than-expected margins due to negative operating leverage if volume falls and lower-than-expected dividends which may spook yield investors.
As at 11.30 am, shares in UMS Holdings are trading at two cents higher or 1.54% up at $1.32.
