UMS Holdings - DBS Research 2020-01-24: Recovery Justifies Higher Valuation

UMS HOLDINGS LIMITED (SGX:558) | SGinvestors.io UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Recovery Justifies Higher Valuation


Remain positive on semiconductor

  • Remain positive on semiconductor; maintain BUY with slightly higher target price pegged to +2SD valuation. See UMS Holdings Target Price.
  • The recent data points for the semiconductor industry have reinforced our positive view. UMS HOLDINGS (SGX:558), a pure semiconductor play, is a prime beneficiary of this uptrend. Given the expectation of a continued recovery in the semiconductor space and anticipated recovery in the mid-down stream segment, which should help to drive demand further, we expect further re-rating of the stock’s forward PE to +2.0 SD on FY20F earnings.
  • During the last semiconductor upcycle in 2016/2017, the PE valuations shot beyond the +2SD level. The semiconductor market is now larger and less volatile than before, due to growth and diversification of demand drivers, spanning consumer and enterprise end-markets. Thus, we believe +2SD is a fair valuation peg. Maintain BUY.



Where we differ:

  • We are more positive on the semiconductor outlook and expect UMS to trade to +2SD FY20F earnings.


Potential Catalysts:

  • Stronger recovery in semiconductor equipment sales, client diversification, earnings-accretive M&As.


Valuation:

  • We expect the growth momentum for UMS to continue. Our target price is raised to pegged to 14.9x FY20F earnings (previously S$1.08, pegged to peers’ average of 14x FY20F earnings).


Key Risks to Our View:






Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-01-24
SGX Stock Analyst Report BUY MAINTAIN BUY 1.16 UP 1.080



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