In FY2024, UMS reported 32% y-o-y lower earnings of $40.6 million as the company is still facing labour shortages, which caused the ramp-up of orders to remain challenging, says Seet.
Nonetheless, the company is enjoying better prospects. A new customer has placed $30 million worth of additional orders for the current FY2025. Seet expects total new orders from the new customer to reach some $50 million, versus $20 million recorded for FY2024.
Also, the company has gone through what Seet calls a "huge learning curve", incurring costs but gaining experience along the way.
"Going forward, we expect execution to improve and UMS should be able to do so with higher margins," says Seet, who sees net margin improving by 1 to 1.5 percentage points (ppt) from FY2024.
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Seet estimates that the company’s earnings have likely bottomed with this new customer and should improve in the years ahead.
"The China+1 thematic, UMS’s dual-listing in Malaysia and the ramp-up of its new major customer could be catalysts going forward," says Seet, as he upgrades UMS to "buy" from "hold", along with a higher target price of $1.16 from $1.03.
Ling of DBS, similarly, is cheered by the company's positive guidance, thanks to its two largest customers. "This momentum is driven by accelerating global AI investment and demand," says Ling.
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With higher margin assumptions, Ling has raised the company's earnings by 7% for FY2025 and 8% for FY2026, leading to her new target price of $1.31 from $1.08.
Similarly, UOB KayHian analyst John Cheong has upgraded the stock from "hold" to "buy".
Besides the orders from the new major customer, Cheong points out that the company has another growth driver. "The prevailing global air travel boom will continue to lift the performance of UMS’ aerospace business," he says.
UMS, mainly its separately listed subsidiary JEP Holdings, is exposed to the aviation industry. JEP's main focus is to manufacture so-called "ultra-high precision" parts used by the industry.
Cheong cites figures from the International Air Transport Association (IATA), which predicts that global air passenger volume will surpass 5 billion this year for the first time in history.
Underpinned by higher revenue projections, Cheong has raised his earnings forecast by 9% for FY2025 and 14% for FY2026.
In addition, Cheong has also raised his margin assumptions. His new target price of $1.21, from 95 cents, is based on 17 times FY2025 earnings, up from a lower valuation multiple of 15 times.
