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

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Tempering Our Expectations

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.

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.

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.

We believe the semiconductor equipment up-cycle is still intact. UMS is currently trading at 1.3x FY20E P/B, which is comparable to recent down-cycles, i.e. 2016 and mid-2019. Click view full report button below to see sensitivity analysis details and peer comparison table.
UMS troughed at 0.2x forward P/B during the GFC. However, UMS was lossmaking then, while currently we still expect profitability to be intact.
See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News.
Forward yield is now around the long-term mean, with 1SD above mean at 13%.