UMS remains optimistic on FY24F outlook
- UMS Holdings’ 9M23 net profit was above expectations, at 76.7% of our fullyear forecast (71.4% of loomberg consensus’).
- UMS guided for a positive outlook for FY24F, as the company is optimistic that a recovery for the semicon industry is underway.
- Reiterate Add, with an unchanged S$1.49 TP (still based on 1.0 s.d. above its 10-year average P/E (FY14-23F) of 12.0x given the positive outlook.
3Q23 net profit above our expectations
3Q23 revenue fell 29% yoy (due to the slowdown in the semicon industry) to S$71.3m, in
line with our S$72.7m forecast. 9M23 revenue formed 72.5%/71.6% of our/Bloomberg
consensus’ full-year forecasts. The key semiconductor segment (88.6% of 9M23 revenue)
saw a 16% yoy decline in 9M23 revenue. The aerospace segment benefitted from the
recovery in global travel and saw a 41% yoy growth in 9M23 revenue. 3Q23 net profit of
S$15.4m (-64% yoy, +32% qoq) was above our S$12.2m expectation, due to better cost
controls and lower tax rate. 9M23 net profit was above our expectations, at 76.7% of our
FY23F forecast (71.4% of Bloomberg consensus’). An interim DPS of 1.20 Scts was
declared, in line with our expectation.
Raising FY23F EPS by 4.0%
Given the better-than-expected 3Q23 net profit, we raise our FY23F EPS forecast by 4.0%,
factoring in the better gross material margin and lower tax rate. In its 3Q23 results press
release, UMS commented that its performance in the coming months would be supported
by the optimistic guidance of some major semiconductor equipment makers, including “to
deliver sustainable outperformance” going forward (Applied Materials’ 3Q23 results press
release) and “tremendous growth vectors ahead and … investing strategically to drive longterm outperformance” (LAM Research’s 3Q23 results release).
We reiterate our Add call on UMS with an unchanged TP of S$1.49, still based on 12.0x CY15F P/E (+1.0 s.d. above its 10-year average P/E, i.e. FY14-23F), given the potential upswing in net profit. We reiterate our Add call given UMS’s potential for EPS growth (average of 18.1% over FY24-25F) and initial success in customer diversification (in its 1H23 results release, it had 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 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.