UMS Holdings - Maybank Kim Eng 2020-03-29: Tempering Our Expectations

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

UMS Holdings - Tempering Our Expectations


Risks priced in; maintain BUY

  • We trim UMS Holdings (SGX:558)'s FY20-22E EPS by 6-15% to factor in
    1. closure of UMS’ Penang facility amid a movement restriction order in Malaysia;
    2. AMAT’s withdrawal of 2QFY20 guidance due to supply chain and operational disruptions; and
    3. a shallower pace of semiconductor capex recovery amid increased uncertainties.
  • Our ROE-g/COE-g Target Price falls to SGD0.96, now on 2x FY20E P/B (prev: 2.3x).
  • Key risk is a prolonged economic downturn that weakens the drivers of the current capex recovery cycle.
  • Maintain BUY.



Operational updates

  • UMS’ Penang facility is closed from 18-Mar to 14-Apr due to a country-wide movement control order.
  • Notably, in an operational update on 25- Mar, UMS omitted the statement that it does not expect the temporary closure to result in “significant material financial impact” found in the 23-Mar update.
  • While Micron’s (Applied Materials’ customer) unchanged FY20 capex guidance is a relief, it is adopting a flexible approach to capex vis-à-vis fluid demand dynamics. This may imply downside risks to rate of memory investment recovery, a driver of our thesis.


Clean balance sheet; 7% yield supported by FCF

  • UMS has a clean balance sheet with net cash to equity of 9%. FY20E yield of 7% is also fully funded by FCF. A key risk to dividends is a more severe than expected economic downturn, as semiconductor equipment companies are highly cyclical.
  • A mitigating factor is that recent cycles, and future ones are expected to be less pronounced amid more structural growth drivers such as increasing chip complexity and scaling challenges.


Forward P/B comparable to recent downturns



Read also






Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-03-29
SGX Stock Analyst Report BUY MAINTAIN BUY 0.96 DOWN 1.130



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