In his report dated May 11, Tng has kept his target price unchanged at $1.63, which is based on a target P/E of 14.45x on his FY2023 earnings per share (EPS) forecast.
On the back of the company’s strong order book, Tng has raised his revenue forecasts by 9.6% to 9.7% for the FY2022 to FY2024.
He has also adjusted his gross material margin down to 51.4% for the same period to factor in inflationary cost pressures.
“We also use 1QFY2022 effective tax rate as a guide and revised our FY2022-FY2024 effective tax rate assumption to 18.6%,” says Tng.
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“UMS has engaged a tax consultant to help resolve the tax issue (inability to meet pioneer tax incentive condition) with the Malaysian authorities. A positive resolution would low er its effective tax rate and lead to potential tax provision write-back,” he adds.
To Tng, potential catalysts that could re-rate UMS’s share price include stronger-than-expected orders for its semiconductor business, securing new customers for its new Penang plant and faster-than-expected earnings recovery for JEP’s aviation business segment.
“Downside risks include higher raw material prices (aluminium) arising from the Russia/ Ukraine conflict and failure to renew contract with key customer,” he adds.
As at 3.23pm, shares in UMS are trading 1 cent lower or 0.86% down at $1.15.
