Brokers’ take: DBS expects UMS order momentum to slow, lowers target to S$1.20

DBS Group Research has lowered its target price on UMS Holdings to S$1.20 from S$1.53, while maintaining its “buy” call.   The drop in target price comes as the research team cuts its earnings estimates for FY2023 and FY2024 to account for slow order momentum and margin pressures, DBS said in a report dated May 11. 

DBS’ new target price of S$1.20 implies an upside of 27 per cent from the counter’s last traded price of S$0.945 as at 11.07 am on Friday. UMS shares were trading 2.1 per cent or S$0.02 lower at the time. The research team anticipates order momentum from both existing and new customers to be weak in the near term, with a recovery only expected in 2024.   “Furthermore, UMS is losing market share as the group was unable to fulfil orders during the peak cycle last year,” said DBS analyst Ling Lee Keng.   DBS now projects FY2023 and FY2024 net margins to be 21.7 per cent and 23.1 per cent respectively, compared with 24.4 per cent and 25 per cent previously. This comes as UMS’ Q1 net profit drops 10 per cent on the year to S$17.4 million on higher expenses and foreign exchange losses.   The research team’s near-term outlook on the semiconductor industry continues to be soft amid ongoing macro headwinds, with a further dip expected in coming months. However, expectations of an uptrend in the longer term remains intact, Ling said.   UMS’ semiconductor segment accounted for 90 per cent of its total revenue of S$80.8 million for the first quarter of 2023.   Looking ahead, DBS believes UMS is in a position to benefit from the global trend of trade diversification as its main production facilities reside in Malaysia. Its second plant in Penang is expected to begin production in mid-2023.

This comes amid US-China trade tensions, which have resulted in more companies diversifying their manufacturing footprint, Ling said.