UOB Kay Hian, Maybank and DBS are bullish on the semiconductor manufacturer as it boosts production

 

SEMICONDUCTOR equipment manufacturer UMS Integration : 558 -0.88% 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 &ldquo buy&rdquo from &ldquo hold&rdquo , 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. &ldquo UMS has gone through a huge learning curve,&rdquo he said. &ldquo Going forward, we expect execution to improve, and UMS should be able to do (this) with higher margins.&rdquo He believes that the company&rsquo 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&rsquo 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.

 

Meanwhile, UMS&rsquo 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&rsquo s revenue has grown quarter on quarter since the first quarter of FY2024. &ldquo Positive guidance from the company&rsquo s two largest global semiconductor customers supports a positive outlook. This momentum is driven by accelerating global artificial intelligence investment and demand,&rdquo 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&rsquo new customer. Cheong explained that the brokerage&rsquo s revised target price for the stock is based on a higher price-to-earnings (P/E) valuation of 17.6 times &ndash above the average that UMS has historically traded at. &ldquo The reason for pegging our P/E-based valuation multiple to above mean is to reflect&rdquo the ramp-up in production and improvement in earnings, in light of UMS&rsquo new customer, the analyst said.

 

In relation to the latest financial results, UMS chairman and chief executive officer Andy Luong said that &ldquo prospects in FY2025 remain bright&rdquo 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 &ldquo significant improvement in delivery, supported by strong order flow&rdquo , UMS added.

UMS Integration, formally known as UMS Holdings , has reported earnings of $40.6 million for FY2024 ended Dec 31, 2024, down 32% y-o-y. For 2HFY2024, the company saw a 29% dip in earnings of $11.1 million. 

 

Earnings per share for FY2024 came in at 5.74 cents per share. 

 

Meanwhile, the group reported revenue for the full year of $242.1 million, down 19% y-o-y. For 2HFY2024, the group reported 9% lower earnings of $67.2 million.

 

Revenue for the full year fell as sales in the group&rsquo s semiconductor segment and others segment decreased 21% and 35% respectively. 

 

Semiconductor Integrated System sales decreased 33% to $94.4 million in FY2024 from $140 million in FY2023. Revenue from component sales fell 8% to $110.2 from $120 million during the same period.

 

Apart from Malaysia, which saw revenue surging 97% y-o-y, sales declined in all the group&rsquo s key geographical markets. Singapore, US, Taiwan and others reported sales decline of 23%, 6%, 36% and 36% y-o-y respectively in FY2024.

 

In the fourth quarter of 2024, group revenue fell y-o-y but improved q-o-q. Sales have resumed quarterly growth since 1QFY2024, the group says. 

 

Aerospace sales, which benefitted from the global aviation rebound, increased 2% y-o-y during the 4QFY2024. 

 

Compared to 3QFY2024, revenue in the semiconductor segment grew 4% &mdash Integrated System sales eased 7.5% while component sales rose about 16%.

 

The group&rsquo s overall earnings decline was due to lower revenue and higher expenses. Depreciation expenses increased 10% mainly due to fixed asset additions. Other expenses also rose 3% as a result of higher professional fees for the group&rsquo s secondary listing in Malaysia, as well as higher property and machinery maintenance costs.

 

The Group' s cash and cash equivalents grew to $79.9 million as at Dec 31, 2024. 

 

&ldquo We have stayed profitable and grew our revenue every quarter amid challenging global market conditions and geopolitical tensions,&rdquo says UMS Chairman and CEO Andy Luong. 

 

" Our prospects in FY2025 remain bright as we speed up the production ramp-up for our new customer in our new Penang facilities. The prevailing global air travel boom will continue to lift the performance of our Aerospace business.&rdquo

 

The group has proposed a final dividend of 2 cents per ordinary share.