UMS (SGX:558) reported 3Q23 revenue of S$71.3m and PATMI of S$15.3m, in line with our/consensus estimates. Management expects 4Q23E semi-con revenue to be flat but the aerospace segment to continue to pick up.
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Interim dividends were increased to S$0.012, bringing yield to 4.3% for FY24E. As a result, we maintain BUY on UMS with a target price of S$1.44, pegged to 11x FY24E P/E.
Margins improve on new contract terms
UMS's 3Q23 revenue decreased 29% y-o-y and PATMI fell 64% but margins improved materially, growing to 51.2% from 50.5% in 3Q22, mainly due to better FX as well as new contract terms with its key customer where lower volume resulted in higher pricing.
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Customer orders are still expected to pick up in FY24E but remain stable for 4Q23E. Aerospace continues to be profitable and is still benefiting from a sector recovery.
Ramp up still on track
UMS has received in-principle agreement with a new customer whom we believe to be LAM Research (Nasdaq: LRCX) for a 3-year contract with a renewal option. UMS still expects S$30m contribution in FY24 and S$300m top-line contributions p.a. in the next 3- 5 years.
If all goes well, FY24E could potentially be a good year for UMS.
Better prospects plus attractive 4.3% yield
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