SEMICONDUCTOR equipment manufacturer UMS Integration missed consensus earnings estimates for the full year ended December, but has earned upgrades from three brokerages on the back of a rosier outlook for FY2025 as its production is set to ramp up.
Analysts from UOB Kay Hian (UOBKH), Maybank and DBS upgraded the counter to “buy” from “hold”, with target prices of S$1.21, S$1.16 and S$1.31, respectively.
Shares of UMS closed at S$1.12 on Thursday (Mar 6), down 0.9 per cent or S$0.01.
Maybank analyst Jarick Seet noted that the company incurred additional costs as it increased production for a new key customer in FY2024. “UMS has gone through a huge learning curve,” he said. “Going forward, we expect execution to improve, and UMS should be able to do (this) with higher margins.” He believes that the company’s net margin will improve by up to 1.5 percentage points. However, he also noted that while UMS expects S$30 million in additional orders in FY2025, it is still facing labour shortages. This could pose a challenge to meeting the higher demand.
UMS’ new customer contributed about S$20 million to its FY2024 revenue. This is expected to grow to S$50 million in FY2025 as the semiconductor manufacturer continues to ramp up its new product initiatives as well as production of existing goods.
For the full year ended Dec 31, UMS posted earnings of S$40.6 million, down 32 per cent from S$60 million the year before. This was due largely to the weaker semiconductor segment, as global chip demand remained muted, said UOBKH analyst John Cheong.
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Meanwhile, UMS’ FY2024 revenue declined by 19 per cent year on year to S$242.1 million, from S$299.9 million.
Despite this, DBS analyst Ling Lee Keng noted that the company’s revenue has grown quarter on quarter since the first quarter of FY2024. “Positive guidance from the company’s two largest global semiconductor customers supports a positive outlook. This momentum is driven by accelerating global artificial intelligence investment and demand,” she said.
DBS raised its earnings estimates for FY2025 and FY2026 by 7 per cent and 8 per cent, respectively, on the back of higher margin assumptions.
Similarly, UOBKH raised its earnings forecasts for FY2025 by 9 per cent, and FY2026 by 14 per cent. It also raised its revenue estimates to account for the demand from UMS’ new customer. Cheong explained that the brokerage’s revised target price for the stock is based on a higher price-to-earnings (P/E) valuation of 17.6 times – above the average that UMS has historically traded at. “The reason for pegging our P/E-based valuation multiple to above mean is to reflect” the ramp-up in production and improvement in earnings, in light of UMS’ new customer, the analyst said.
In relation to the latest financial results, UMS chairman and chief executive officer Andy Luong said that “prospects in FY2025 remain bright” as the group speeds up production at its new Penang facility.
Now operational, the 300,000-square-foot manufacturing site is expected to lead to “significant improvement in delivery, supported by strong order flow”, UMS added.
