• UMS (SGX:558) reported a record 3Q22, with both revenue and PATMI exceeding consensus and our estimates (9M22 PATMI at 88% of FY22E revenue).
• UMS’s 6-month outlook remains robust with a large order backlog from its key customer. Management said that the slightly lower forecast given by its key customer recently is unlikely to significantly impact its performance. As a result, we expect a strong 4Q22E and a better FY23E and raise our PATMI estimates by 13.4% for FY22E and 13.8% for FY23E, resulting in a higher target price of S$1.34 (from S$1.20) pegged to a lower 8.0x (from 8.5x) FY23E P/E.
• We upgrade UMS to BUY from HOLD due to the more secure outlook.

Strong Semi-con Sales and Aerospace Rebound

• Component sales revenue was up 18% y-o-y to S$44.7m while aerospace rose 23% to S$3.8m y-o-y.

UMS's Expansion Plans on Track

• Construction of the new 300,000 sqft Penang factory is on schedule for completion by end-2022 and UMS aims to ramp up production from the middle of 2023. Management says it is in active discussion with a potential new semi-con customer who it hopes will absorb the plant’s entire output. If successful, this would help UMS diversify away from its single-largest customer which currently generates more than 80% of its revenue.

1H23E Order Book Largely Secured – Upgrade to BUY

• With the next 6 months orders remaining strong and the potential gain of a new customer, we feel more positive on UMS’s outlook despite the current challenges facing the semi-con space.

• As UMS’s valuation remains attractive at 6.4x FY23E P/E, we upgrade to BUY but pegged to a lower 8.0x P/E down from an 8.5x valuation to be conservative due to challenging macro sector outlook.

Source: Maybank Research - 14 Nov 2022