UMS is now trading at a PEG of less than 1, which is deemed "compelling" at 18x FY2026F P/E against our FY2024 - FY2027 earnings growth CAGR of 20% and below the peer average of 21x.
According to Yeo, UMS offers a recovery play on the front-end semiconductor sub-sector. The wafer fabrication (fab) equipment segment is expected to grow by 7% y-o-y in 2025 and 10% y-o-y in 2026, according to the most recent projections by industry association Semiconductor Equipment and Materials International.
As indicated by SEMI, growth will be driven by first, leading-edge logic, memory, and technology transitions; investment in capacity expansion; and leading-edge production from chip innovations on the back of artificial intelligence (AI) applications, data centres (DC), high-performance computing, and automotive electrification.
"This makes UMS a key beneficiary of the semiconductor equipment growth trend," says Yeo.
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In addition, UMS has reduced its reliance on what was its key customer Applied Materials. Since last March, via its expanded presence in Penang, UMS has been serving Lam Research, which has helped lower customer concentration risk, says Yeo.
With an eye on mitigating risks of sanctions, the new customer has a strategy to grow its fab capabilities in Malaysia.
"We expect new product introductions from the new customer to contribute to its new order ramp-up," says Yeo.
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For context, UMS's revenue in Malaysia in 1HFY2025 more than doubled y-o-y to $17 million from $5 million, and he expects this strong growth to continue, backed by orders from its new customer.
Overall, UMS's 1HFY2025 earnings grew 6% y-o-y to $20 million on $125 million in revenue.
"We expect growth to be fuelled by the continued recovery of the semiconductor sector as well as the ramp-up in orders from its new key customer," says Yeo.
He warns that downside risks include a later-than-expected demand recovery, slow progress of new customer order ramp-up, and geopolitical supply chain shifts.
UMS Integration shares gained 4.05% as at 11.12 am to trade at $1.54, extending a gain of 46.67% year to date.
