CGS-CIMB Research is keeping its “add” call on UMS as the company’s net profit for the 1QFY2022 ended March stood in line with the brokerage’s expectations.
UMS’s revenue for the quarter stood above CGS-CIMB analyst William Tng’s expectations.
In his report dated May 11, Tng has kept his target price unchanged at $1.63, which is based on a target P/E of 14.45x on his FY2023 earnings per share (EPS) forecast.
On the back of the company’s strong order book, Tng has raised his revenue forecasts by 9.6% to 9.7% for the FY2022 to FY2024.
He has also adjusted his gross material margin down to 51.4% for the same period to factor in inflationary cost pressures.
“We also use 1QFY2022 effective tax rate as a guide and revised our FY2022-FY2024 effective tax rate assumption to 18.6%,” says Tng.
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“UMS has engaged a tax consultant to help resolve the tax issue (inability to meet pioneer tax incentive condition) with the Malaysian authorities. A positive resolution would low er its effective tax rate and lead to potential tax provision write-back,” he adds.
To Tng, potential catalysts that could re-rate UMS’s share price include stronger-than-expected orders for its semiconductor business, securing new customers for its new Penang plant and faster-than-expected earnings recovery for JEP’s aviation business segment.
“Downside risks include higher raw material prices (aluminium) arising from the Russia/ Ukraine conflict and failure to renew contract with key customer,” he adds.
As at 3.23pm, shares in UMS are trading 1 cent lower or 0.86% down at $1.15.
