Net profit growth resumes in FY24-25F
- We expect UMS Holdings to report 3Q23F net profit of S$12.2m (-71.3% yoy, +5.0% qoq) on 10 Nov 2023. We also expect DPS of 1.2 Scts for 3Q23F.
- With WFE spending expected to grow 15%in CY14F, we expect UMS to be able to deliver core EPS growth of 11.3-29.7% over FY24-25F.
- Reiterate Add, with a higher S$1.49 TP (previously S$1.19) as we roll over to FY25F.
3Q23F net profit could have grown 5% qoq
We expect UMS to report 3Q23F revenue of S$72.7m (+5.0% qoq, -27.3% yoy) and net
profit of S$12.2m (+5.0% qoq, -71.3% yoy as 3Q22 net profit of S$42.5m benefitted from
a tax credit of S$11.9m) on 10 Nov 2023. We also expect DPS of 1.2 Scts to be declared.
FY24-25F recovery likely for front-end semicon industry
According to our US JV partner, Raymond James (RJ), Applied Materials (AMAT, UMS’s
key customer) is well-positioned to benefit from megatrends such as artificial intelligence
(AI), electric vehicles (EV), advanced driver assistance systems (ADAS) and industrial
automation. RJ expects wafer fab equipment (WFE) spending to trough in 2H23F and yoy
growth to resume in 2H24F, setting the stage for a multi-year cyclical recovery. RJ’s view
is also in line with that of Semiconductor Equipment and Materials International (SEMI, 12
Sep 2023), which predicts that global fab equipment spending for front-end facilities is
expected to decline 15% yoy to US$84bn in 2023F, from a record high of US$99.5bn in
2022, before rebounding 15% yoy to US$97b in 2024F.
Reiterate Add, higher S$1.49 TP on rollover
With wafer fab equipment (WFE) spending expected to recover in FY24F, we think UMS
should face less pricing pressure from customers; hence, we raise our gross material
margin assumptions by 0.3-1.1% pts, leading to a 1.1-4.6% increase in our FY24-25F core
EPS forecasts. We also roll over our valuation to FY25F and value UMS at 12.0x CY15F
P/E (+1.0 s.d. above its 10-year average P/E, i.e. FY14-23F; previously 11.1x) given the
potential upswing in net profit. We reiterate our Add call given UMS’s potential for EPS
growth and initial success in customer diversification (UMS in its 1H23 results release
guided that a new customer could contribute at least US$30.0m in revenue for FY24F).
Re-rating catalysts: securing more new customers and further orders from new customers
for its new Penang plant, improving factory utilisation rates, return of orders for aircraft
components benefitting its aerospace division, and better-than-expected cost
management. Downside risks include a negative impact from its key customer’s loss of
sales to China, slower-than-expected rate of return of orders from customers, and UMS’s
failure to secure enough orders for its Penang plant, or an increase in price competition as
other suppliers in Penang also ramp up their efforts to secure business with semicon
companies that have recently expanded there.
