UMS Holdings - Maybank Kim Eng 2020-11-13: Focus On The Upswing

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Focus On The Upswing

UMS Holdings (SGX:558)’s 3Q20 PATMI of S$12.9m (+41% y-o-y, +12% q-o-q) was slightly ahead of our and consensus expectations, on the back of the continued upswing in global semiconductor equipment spending.
UMS and key customer Applied Materials (AMAT) are also upbeat about business prospects. We raise UMS's FY20-22E earnings forecast by 4% to reflect this. Maintain BUY on UMS with higher ROE-g/COE-g target price of S$1.42 (2x FY21E P/B).

UMS's 3Q20 revenue rose 37% y-o-y and 12% q-o-q to S$45.2m, primarily driven by sales to AMAT, on the back of robust global semiconductor equipment spending.
Gross margin was stable y-o-y at 55.3% despite higher mix of semiconductor integrated systems sales (which typically command lower margins), due to operating leverage and improved efficiency.

3Q20 interim DPS was halved to S$0.005 q-o-q, as UMS is conserving cash in order to be flexible to take advantage of growth initiatives in the short-term. If such opportunities materialise, we believe UMS may need to expand production capacity, and may need to draw on internal resources and credit lines to fund this.
To factor in cash conservation, we reduced our UMS's dividend assumption from S$0.06 to S$0.03-0.04 in FY20-22E.
The growth opportunity may be a potential new customer, which would bode well for growth and diversification in the long-run, if it pans out.

AMAT reported beats on 4QFY20 top and bottom-line. It is also guiding for its semiconductor systems revenue to grow 12% q-o-q. Meanwhile, SEMI is projecting global fab equipment spending to grow 13% in 2021 to USD67.7b, on the back of pandemic induced demand for chips, from gaming, communications, IT infrastructure, data centres and healthcare electronics.
See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News.
A key risk to our forecasts would be an unexpectedly strong inventory adjustment cycle, which may temper the pace of global semiconductor equipment spending.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-13

SGX Stock Analyst Report BUY MAINTAIN BUY 1.410 UP 1.36