UMS Holdings - RHB Invest 2020-11-25: Riding The Semiconductor Wave

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Riding The Semiconductor Wave

UMS Holdings (SGX:558) - A good proxy to the semiconductor industry’s recovery.
We believe that UMS will be a good proxy to the semiconductor industry’s recovery, accompanied by an attractive yield of 4.9%. UMS is also trading at 13x FY19 P/E, which should be significantly lower with its 9M20 PATMI currently growing 49% y-o-y and the positive outlook for FY21F.

UMS's management expects the semiconductor industry to continue recovering in 2020.
UMS should continue to benefit from sustained capital equipment spending and the global memory rebound. There are also signs that inventories are stabilising, and the dynamic random-access memory (DRAM) pricing is likely to rise.
The Semiconductor Equipment Manufacturing Industry (SEMI) expects equipment sales to increase by 5.5% to USD60.8bn in 2020, on advance logic and foundry spending as well as new projects in China. Chip sales have bottomed out, and are forecasted to improve, but the industry is unlikely to see a V-shaped recovery as moderate growth is more plausible.
UMS is also working closely with its customers on mitigation measures to ensure minimal disruptions stemming from the COVID-19 pandemic to operations, which affected its supply chain in China.

With a strong balance sheet, UMS rewarded shareholders with a special dividend that took total FY19 dividend to 4 cents, reflecting an attractive yield of 4.9%.
With profitability expected to increase along with a brighter outlook, we are positive on UMS to maintaining the dividend ratio, with the possibility of an increase going forward.

As UMS has renewed its integrated system business contract with its key customer for another three years, its customers’ future performance will be instrumental to earnings growth. The key customer sees no change in its FY20F guidance despite a delay in revenue, which will be deferred to 2H20F and remains bullish on its recovery thesis, from the anticipated robust foundry spending and memory investment recovery.

As at 9M20, UMS's PATMI was up 45% y-o-y to S$35.2m, already above that of FY19. Its key customer is also doing well and has a positive outlook for FY21F.
Historically, there is a deep correlation between its key customer and UMS’s own earnings performance, and with the key customer still accounting for above 80% of its revenue, this trend will likely continue.
UMS is also trading below peer valuation of 12x FY20F P/E and with its further growth potential in FY21F, it should be even more undervalued.
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: Economic slowdown, and the US-China trade war worsening.
UMS is one of the companies highlighted in Top Singapore Small Cap Companies - RHB Invest 2020-05-14: 20 Jewels 2020 Edition.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-25

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000