Analysts from UOB Kay Hian, CGS-CIMB Research, Maybank Securities and DBS Group Research are keeping their &ldquo add&rdquo and &ldquo buy&rdquo calls after UMS reported a quarterly improvement for its set of results for the 3QFY2023 ended Sept 30.

 

For the 3QFY2023, UMS reported earnings of $15 million, 64% lower y-o-y and 32% higher q-o-q. 9MFY2023 earnings fell by 46% y-o-y to $44 million. The group has also kept its interim dividend of 1.2 cents during the period. The dividend was raised from 1 cent to 1.2 cents in the 2QFY2023.

 

UMS&rsquo s earnings stood in line with UOB Kay Hian and Maybank&rsquo s expectations it stood above CGS-CIMB&rsquo s full-year estimates while coming in below DBS&rsquo s expectations.

 

UOB Kay Hian analyst John Cheong sees a &ldquo buoyant outlook&rdquo supported by the &ldquo sanguine guidance&rdquo of key semiconductor makers expecting to deliver sustainable outperformance going forward.

 

For the group&rsquo s 3QFY2023 earnings, the analyst notes that it benefited from improved material margins which grew to 51.2% in 3QFY2022 from 50.5%, mainly due to higher US dollar (USD)/Singapore dollar (SGD) exchange rates and better margins arising from the renewal of its integrated system contract with its key customer.

 

In the 3QFY2023, UMS&rsquo s revenue continued to show signs of stabilisation in 3QFY2023, falling 29% y-o-y but only declining 4% q-o-q. 

 

Revenue in the semiconductor segment fell 30% y-o-y due to slower global semiconductor demand while revenue in UMS&rsquo s other segments plunged 55%, mainly due to the weaker material and tooling distribution business affected by the general business slowdown. 

 

&ldquo The decline in semiconductor revenue was due to a 34% drop in component sales, from $45 million in 3QFY2022 to $30 million in 3QFY2023, and a 25% y-o-y decline in the group&rsquo s Semiconductor Integrated System (SIS) sales from $45 million in 2QFY2022 to $33 million in 3QFY2023,&rdquo notes Cheong.

 

All the key geographical markets of UMS posted lower sales this year, with revenue in Singapore falling 28% y-o-y, US sales decreasing 12% due to lower component sales for new equipment and revenue in Taiwan declining 37% as a result of lower component sales. 

 

Despite this, the group expects its performance in the coming months to be supported by the positive guidance of some major semiconductor equipment makers expecting to deliver a sustainable outperformance moving forward.

 

According to Semiconductor Equipment and Materials International (SEMI), an FY2024 rebound is expected to continue through FY2026, with wafer shipments setting new highs as silicon demand increases to support artificial intelligence (AI), high-performance computing (HPC), 5G, automotive and industrial applications. 

 

SEMI also predicts fab equipment spending to recover to US$97 billion ($130 billion), representing a 15.5% y-o-y rise, and total foundry capacity, consisting of foundry as well as integrated device manufacturers, is set to increase 7% in 2024.

 

Cheong adds: &ldquo Investments into fab construction projects which hit a historical high in FY2023 are expected to continue at a higher level in FY2024.&rdquo

 

Furthermore, he notes that UMS has also secured an in-principle agreement with its new customer for a new renewable three-year contract. 

 

&ldquo This new customer contract win will boost UMS&rsquo s buoyant outlook as its new Penang facilities will be ready for volume production by September. The production ramp-up will enable it to take on new orders from its new customer which is estimated to reach at least US$30 million next year,&rdquo writes Cheong.

 

Cheong&rsquo s unchanged target price of $1.56 is based on a P/E valuation of 13.5 times of UMS&rsquo s FY2024 earnings per share (EPS), pegged at 0.5 standard deviation (s.d.) above its historical mean P/E.

 

CGS-CIMB analyst William Tng has kept his target price unchanged at $1.49, which is still based on 12.0 times UMS&rsquo s calendar year (CY) P/E and 1.0 s.d. above its 10-year average P/E, given the potential upswing in UMS&rsquo s net profit.

 

As UMS&rsquo s profit was better than expected, Tng has raised his FY2023 earnings per share (EPS) forecast by 4.0% to factor in the better gross material margin and lower tax rate.

 

Though UMS&rsquo s 3QFY2023 results stood below the expectations of DBS analyst Ling Lee Keng, the analyst notes that it was still a &ldquo strong performance&rdquo with UMS&rsquo s 2HFY2023 recovery remaining &ldquo intact&rdquo . As such, she has increased her target price to $1.55 from $1.51 previously, pegged to a higher P/E of 13x, near the 1 s.d. Level from its four-year average and up from 12 times as she expects UMS&rsquo s outlook to improve.

 

To her, UMS' s new Penang facilities put the group in a good position to benefit from the trade diversification trend. 

 

Ling writes: &ldquo On the back of the China-US trade tensions, which have worsened with the further tightening by the US on exports to China, more companies are looking to diversify their manufacturing footprints. The completion of the new plant in Penang offers new growth opportunities.&rdquo

 

Maybank Securities&rsquo Jarick Seet also likes UMS&rsquo s brighter prospects due to the anticipated recovery in the semicon industry in FY2024. Noting the raised dividends during the 2QFY2023, the analyst expects UMS to continue its dividend of 1.2 cents per share for the 4QFY2024, bringing its total yield for FY2024 to 4.3%.

SEMICONDUCTOR company UMS Holdings on Friday (Nov 10) reported a 64 per cent drop in net profit for the third quarter ended September, amid a slowdown in global semiconductor demand.

 

Net profit fell to S$15.3 million in Q3 FY2023, from S$42.5 million in the corresponding year-ago period.

 

In a bourse filing, the group attributed the lower bottom line figures to softer sales, smaller foreign exchange gains, higher expenses, as well as an increase in income tax due to the reversal of tax provisions for one of its Malaysian subsidiaries in Q3 FY2022.

 

Revenue fell 29 per cent on year to S$71.3 million in Q3 FY2023, from S$100.1 million in Q3 FY2022.

 

The weaker performance was due to lower sales from both its semiconductor and &ldquo others&rdquo business segments, the group said. Revenue in its &ldquo others&rdquo segment slipped, as the material and tooling distribution business was affected by the general business slowdown.

 

However, these numbers were partially lifted by better performance from UMS&rsquo aerospace segment, due to the sustained recovery of the global aerospace industry, it added.

 

Earnings per share (EPS) stood at 2.29 Singapore cents for the quarter, as compared to 6.35 cents in Q3 FY2022.

 

An interim dividend of 1.2 Singapore cents per share was declared, up from one cent a year ago. Payment of the dividend will be made on Dec 15.

 

For the nine months ended September, net profit fell 46 per cent to S$44.3 million, down from S$82 million a year ago. Revenue came in 17 per cent lower at S$226.4 million, compared to S$271.4 million a year ago.

 

EPS likewise declined to 6.61 Singapore cents in the nine-month period, from 12.29 cents a year ago.

 

Andy Luong, UMS&rsquo chairman and chief executive officer, said: &ldquo While global chip demand remains soft and macroeconomic challenges persist, there are now signs of an industry rebound.&rdquo

 

He added that the group&rsquo s performance in the coming months will be supported by the &ldquo sanguine guidance of some major semiconductor equipment makers which expect to deliver sustainable outperformance, going forward&rdquo . Luong also noted &ldquo tremendous growth vectors ahead&rdquo , adding that the group will be investing strategically to drive long-term outperformance.

 

Barring any unforeseen circumstances, UMS said it expects to remain profitable for FY2023.