The worst is not over for UMS, analysts trim their TPs

DBS is hopeful of a stronger 2HFY2023 and a recovery in 2024 on the back of strong recovery in the semiconductor industry.

Analysts at Maybank Securities and DBS Group Research have lowered their target prices on UMS Holdings 558 to 94 cents and $1.20 respectively, in anticipation of a weaker quarter following the company’s 1QFY2023 ended March results announcement.

For its 1QFY2023, UMS reported a patmi of $17.4 million, higher than Maybank analyst Jarick Seet’s estimate of $14.5 million. Its  semiconductor integrated system sales remained strong in 1QFY2023, surging 37% y-o-y to $40.9 million. Component sales revenue, however, was down 26% to $32 million.

For 2QFY2023, Seet forecast UMS to record 15%-20% decline q-o-q in sales of components and integrated systems on the back of lower demand. “We think 2QFY2023 will be the bottom as we believe demand will pick up in 2HFY2023,” he adds.

DBS’s Ling Lee Keng echoes Seet’s sentiment — the analyst is hopeful of a stronger 2HFY2023 and a recovery in 2024 on the back of strong recovery in the semiconductor industry. She cites a forecast by consulting firm Gartner, which predicts a global semiconductor market rebound of 18.5% y-o-y in 2024.

That said, Ling notes that the industry outlook is remaining soft in the near term, expecting the worldwide semiconductor shipments to dip further in the coming months. As at March, shipment data had eased 23% from the peak in May 2022 to US$39.8 billion. There may be another 10% to 20% drop in the months ahead based on historical trends, the analyst points out.

“However, the longer-term uptrend remains intact. Drivers would include the growing semiconductor content across technology nodes, continued advancement of leading-edge technologies, increasing investment in legacy nodes and innovation and growth of new enabling technologies such as artificial intelligence,” says Ling.

Maybank’s Seet points out that UMS’s new customer may delay its ramp up due to weak semiconductor demand. As a result, he believes UMS may face higher costs pressures — coupled with a lower revenue base, the company’s margins could decline further in the quarters ahead.

The slowdown in order momentum coupled with margin pressure has led DBS to cut its FY2023 and FY2024 earnings forecast for UMS by 29% and 23% respectively. Ling now expects net margins of 21.7% and 23.1% for FY2023 and FY2023, keeping her “buy” call.

Although Seet remains optimistic on UMS’s longer term prospects, the analyst believes the share price has not fully priced in the weak near-term performance. Amid the uncertain outlook, Maybank keeps its “hold” call on UMS.

As at 9.37am, shares in UMS are trading at an unchanged 92 cents.


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