UMS Holdings - Maybank Kim Eng 2020-06-22: Signs Of Earnings Resilience

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UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Signs Of Earnings Resilience

CEO and SEMI offer positive signs; BUY

• In a Business Times interview, UMS Holdings (SGX:558)’s CEO sees that if business conditions do not deteriorate, 2H20 prospects are “bright” due to the rollout of 5G over the next 2-3 years. Also, SEMI has raised its forecast for 2021 global fab equipment spending to a record USD67.6b (previously: USD65.7b), implying 24% y-o-y increase. These suggest resilience to UMS’ earnings prospects, in our view.
• Maintain BUY with ROE-g/COE-g of SGD1.00 (2x FY20E P/B). See UMS share price.
• Stronger-than-expected order momentum may be a catalyst.

CEO sees “bright” 2H20; room for long-term growth

• We highlight three key takeaways from the interview that reinforces our positive view on UMS:
  1. CEO Mr Luong’s expectation that UMS will do “very well” in 2H20 due to 5G driven spending;
  2. “lots of room” to deliver on competitive pricing to Applied Materials (AMAT), while still focusing on improving profitability; and
  3. room for growth – as UMS plans to expand its Penang capacity by 200,000 sqm (+40%), by 2022.

SEMI expects higher 2021 global fab spending

• While SEMI now forecasts 2021 global fab spending to grow by 24% y-o-y to a record USD67.7b (1Q20 forecast: USD65.7b), it also expects 2020 equipment spending to fall by 4% y-o-y. This contrasts its forecast for a 3% growth in the 1Q20 update, as it anticipates global equipment spending to now trough in 2Q20 rather than 1Q20 previously.
• However, our forecasts for UMS are unchanged as we remain comfortable with UMS’ earnings visibility in 2Q-3Q20. SEMI expects spending to pick up in 2H20, and sees strength in 3D NAND as well as logic and foundry. It expects DRAM spending to pick up in 2021.
• See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News. 

Key risks

• SEMI’s bullish view on 2021 is predicated on demand strength from continuing digital transformation, as well as from cloud services, server storage, gaming and health applications. However, like SEMI, we see downside risks from a reduction in discretionary consumer and corporate spending due to a protracted slump in the global economy.
• We view the potential for SGD0.06 DPS as a support for UMS share price. See UMS Holdings Dividend History.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-06-22

SGX Stock Analyst Report BUY MAINTAIN BUY 1.000 SAME 1.000