A timely placement
- On 1 Feb 2024, UMS announced the successful completion of a placement of 40m new shares at S$1.29/share to institutional investors.
- The net proceeds of S$49.98m from the placement strengthens UMS’s balance sheet to support further business with its new customer, in our view.
- We factor in the new shares and reiterate Add, with unchanged S$1.49 TP, as we think revenue from new customer in FY25F can offset share dilution.
S$49.98m raised from new share placement
On 1 Feb 2024, UMS Holdings completed the placement of 40m new shares at S$1.29 per share to institutional investors. Of the S$49.98m net proceeds raised, 60% would be earmarked for capex, 20% for working capital, and 20% for potential joint ventures or acquisitions. UMS’s share base would increase from 670.5m shares pre-placement to 710.5m post-placement. The placement price of S$1.29 translates into a historical FY22 P/E of 8.8x and 14.4x/11.5x/10.4x our pre-placement FY23-25F EPS forecasts.
4Q23F performance likely similar to 3Q23
We think UMS could report 4Q23F revenue of S$85.7m (+20.3% qoq, -15.1% yoy) as market conditions improved moderately in 4Q23F and higher prices for its system integration (SI) business kicked in. The improvement in net profit could be milder, in our view, as the benefits of higher selling prices for its SI business could be offset by the completion of the recognition of revenue from its lower-margin water treatment business (which UMS is exiting) and the 3.4% decline in the US$/SG$ exchange rate in 4Q23. Hence, we think 4Q23F net profit could be S$15.8m (+3.0% qoq, -2.1% yoy).
Revenue from new customer could gather pace in FY24-25F.
In its 2Q23 results release, UMS had guided that it has secured a new customer and that its new Penang plant would start volume production in Sep 2023. UMS guided for potential FY24F revenue from this customer to be US$30m or more. We raise our FY24-25F revenue by 1.9-2.1% as UMS has started production for this new customer and we think there is room to grow this business over FY24-25F. This raises our FY24-25F net profit forecast by 5.3-5.4%, but core EPS forecasts falls by 0.55-0.60% due to dilution from the new shares.
Reiterate Add
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 17.7% over FY24-25F) and initial success in customer diversification. Re-rating catalysts: securing more new customers and further orders from new customers for its new Penang plant, improving factory utilisation rates, and return of orders for aircraft components. Downside risks include negative impact from its key customer’s loss of sales to China, and slower-than-expected rate of return of orders from customers.
