Brokers’ take: Maybank downgrades UMS to ‘sell’, cites ‘gloomy’ near-term outlook

MAYBANK Securities downgraded its call on UMS to “sell” from “hold” while reducing its price target to S$0.88 from S$1.41 previously, as it believes the semiconductor company’s near-term earnings are “likely to remain weak”.

In a report on Monday (May 13), analyst Jarick Seet noted how an earlier view that UMS had been losing market share with its key customer Applied Materials was “validated” after the company’s manager guided that market share had decreased to between 50 and 70 per cent, from 75 per cent previously.

“While we expected a weak Q1 FY2024, we did not expect the outlook to be gloomy,” he added.

The research house has lowered its FY2024 profit after tax and minority interest estimates by 37.7 per cent, and by 35.3 per cent for FY2025.

Seet nonetheless said he sees potential upside to UMS’ anticipated revenue contributions from its new customer in FY2024, should the semiconductor sector pick up in H2 of the fiscal year.

Shares of UMS were trading S$0.06 or 5.4 per cent lower at S$1.05 as at 10.20 am on Tuesday.

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Maybank’s downgrade on the semiconductor company comes after it reported a 44 per cent decline in net profit to S$9.8 million for the first quarter of FY2024.

Seet observed that the weak performance was due to its key customer’s inventory build-up in Q4 FY2023, with semiconductor integrated systems being the main contributor to UMS’ financial underperformance.

He also noted that management guidance for Q2 to be weak would be “similar” to Q1 FY2024.

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In his view, FY2024 is “likely to be a weaker year” than FY2023.

Responding separately to queries from The Business Times regarding an overall sell-off in semiconductor stocks on Monday, Seet said he remained bullish on Singapore’s semiconductor industry, but “only on selected players like Frencken ”.