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:
- Key client risk. Historically, c.90% of UMS’s revenues on average were attributed to Applied Materials (AMAT).
- Disruptions to the relationship or weakness in AMAT’s end-demand could significantly weigh on UMS’s performance.
- See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News.
Lee Keng LING
DBS Group Research
|
https://www.dbsvickers.com/
2020-01-24
SGX Stock
Analyst Report
1.16
UP
1.080
