He notes that in the 4QFY2025, the group will begin production of a newly-secured product from industry giant Applied Materials (AMAT).
“This could potentially be worth up to 20% of the existing revenue from AMAT if the ramp up goes well. On the existing business, management expects contribution from AMAT to remain stable as well,” writes Seet in his Aug 13 report.
Revenue from the group’s operations surged 250% to $17.4 million in the 2QFY2025 from $5 million in the 2QFY2024 due to its new customer’s ramp up in orders.
On this, the analyst writes: “As more parts are being qualified, management expects this ramp up to continue but UMS is facing worker shortage issues and has to hire from Singapore to train the locals in Malaysia.”
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Seet expects the group’s 2HFY2025 to be better than the first half in terms of revenue and profitability due to the expected increased contribution from the new customer. “We make no change to our earnings estimates,” he writes.
Seet also notes that UMS’ capital expenditure (capex) will “likely be completed” by the end of FY2025, which could lead to a potential dividend increase.
He adds: “This could be done in the way of bonus shares while maintaining the absolute dividend amount per share like they have done so in FY2021. We believe this is a positive catalyst for shareholders, especially with the expected increase in profits in the next few years.”
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Upside swing factors include stronger-than-expected revenue momentum following capacity expansion in FY2022, better-than-expected contributions from subsidiaries Kalf Engineering, Starke and JEP, as well as better-than-expected costs control, which in turn supports margins.
Conversely, downsides include higher-than-expected labour costs, or if UMS faces difficulties expanding its workforce to cope with strong order momentum, lower-than-expected margins due to negative operating leverage if volume falls and lastly lower-than-expected dividends which may spook yield investors.
As at 4.09pm, shares in UMS are trading three cents lower or 2.03% down at $1.45.
