UMS HOLDINGS LIMITED (SGX:558)
UMS Holdings - Momentum Building
2Q20 beat; favourable outlook; Target Price +36%
- UMS Holdings (SGX:558)'s 2Q20 PATMI was slightly ahead of ours and consensus’ estimates, rising 43% y-o-y to SGD11.6m.
- Applied Materials, UMS Holdings’ key customer, as well as SEMI, see strong semiconductor equipment spending momentum continuing into FY21.
- We raise our FY20-22 EPS by 14-16% to reflect this. Maintain BUY on UMS Holdings with higher ROE-g/COE-g Target Price as we roll forward to 2.6x FY21E P/B from 2x FY20E previously.
- We see realisation of strong order momentum as a key catalyst for the stock.
Clearing backlog from 1Q20
- UMS Holdings's revenue rose 35% y-o-y to SGD158.8m driven by a 41% increase in the semiconductor segment. Gross material margin fell 2.3ppt y-o-y to 50.8% as integrated systems, which command lower margins, rose at a faster 65% clip than component sales (+22%). The spike in integrated systems revenue was due to fulfilment of delayed orders from 1Q20.
Strong outlook from AMAT; SEMI
- Overnight, key customer Applied Materials delivered 3QFY20 revenue and earnings that were ahead of estimates. 4QFY20 revenue guidance also beat consensus. AMAT sees continuing strength in logic/foundry spending, as well as the recovery of memory investments to propel the remainder of its FY20, and even into FY21. See takeaways from AMAT's 3QFY20 earnings in PDF report attached below.
- While we note developing concerns on memory oversupply within the industry, AMAT addressed that the bulk of memory spending is driven by technology roadmaps and capacity additions are modest.
- SEMI expects semiconductor equipment manufacturing spending to grow 11% y-o-y to USD70b in 2021.
Buy for 5% yield; favourable risk-reward
- We raise our UMS Holdings's FY20-22E DPS from SGD0.05 to SGD0.06 on the back of increased confidence following decent outlook from both UMS Holdings and AMAT.
- Inclusive of 5.6% FY20E yield, we see total upside potential of 31% on our new target price for UMS Holdings.
- See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News.
- While we believe downside may be limited give the attractive yield, we would also be buyers on dips on the back of robust earnings visibility.
- In our view, key risks are
- return of supply chain disruptions; and
- extended macroeconomic uncertainty that may erode the resilience of semiconductor equipment spending.
Gene Lih Lai CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-08-14
SGX Stock
Analyst Report
1.36
UP
1.000
