Maybank Securities analyst Jarick Seet has upgraded UMS to “buy” from “hold” previously as he sees brighter prospects for the company.
Seet’s report dated Sept 25 comes after UMS’s key client, Applied Materials (AMAT), raised its revenue and profit guidance for the 4QFY2023.
“UMS should benefit as AMAT’s inventory levels should be depleted at a faster rate, increasing the chances of a rebound in components orders in FY2024 ending December 2024,” writes Seet who has also increased his target price to $1.44 from $1.16 previously.
The company should also benefit a renewable in its integrated system contract with its key customer till end-2025, as well as from an in-principle agreement with a new customer. The latter is for a three-year contract with a renewal option. Seet believes that the new customer is LAM Research.
“UMS conservatively expects $30 million [in] contributions in FY2024 and $300 million top-line contributions per annum in the next three to five years. If all goes well, FY2024 could potentially be a good year for UMS,” says the analyst.
Meanwhile, UMS’s 2HFY2023 is likely to be weak, similar to that of its 1HFY2023 performance, as its key customer is unlikely to ramp up its performance this year.
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“As its future looks more secured, UMS should benefit from a recovery in the semiconductor industry in FY2024. Dividends were raised by 20% to 1.2 cents for 2QFY2023, which is positive for shareholders and we can expect a yield of 4.5% for FY2024,” says Seet.
His new target price is based on a higher FY2024 P/E of 11x, up from 9x previously.
As at 9.47am, shares in UMS are trading 4 cents higher or 3.2% up at $1.29.
