UMS Holdings - CGS-CIMB Research 2021-02-26: Industry Back On Growth Footing


UMS Holdings - Industry Back On Growth Footing

  • UMS (SGX:558)'s FY20 revenue was in line with our expectations and Bloomberg consensus.
  • Excluding S$2.1m in forex loss and S$7.0m in impairment charges, FY20 core net profit was in line with our/Bloomberg consensus expectations.
  • We reiterate our ADD call on positive industry outlook. Our target price rises slightly to S$1.31 as we roll over to FY21.

UMS's FY20 core net profit in line with expectations

  • UMS's headline net profit fell 89% y-o-y in 4Q20 but rose 9% y-o-y for FY20.
  • In 4Q20, UMS recorded forex loss of S$1.8m (FY20: S$2.1m), goodwill impairment of S$1.1m and S$5.9m impairment of its investment in 40.69%-owned associate JEP Holdings (SGX:1J4). Excluding these exceptional items, core net profit was S$45.6m (+36% y-o-y).
  • UMS's FY20 core net profit was in line at 95% of our full-year forecast. Balance sheet remains strong with net cash of S$38m.
  • In 4Q20, UMS declared a final dividend of S$0.01 (4Q19: final dividend of S$0.02 and special dividend of S$0.005 per share). UMS commented that the decrease in dividend was to conserve cash in order to drive future business growth.

Management sees strong outlook for semiconductor industry still

  • Management expects growth in the semiconductor industry to remain robust in FY21, citing forecasts from industry body, World Semiconductor Trade Statistics, which projects global chip sales to grow 8.4% y-o-y in 2021 to US$469bn.
  • Another industry forecaster, Semiconductor Equipment and Materials International forecast that global sales of semiconductor manufacturing equipment will reach US$68.9bn for 2020 and grow 4.4% y-o-y to US$71.9bn in 2021 followed by 5.8% y-o-y growth to US$76.9bn in 2022.

Reiterate ADD with a higher S$1.31 target price on rollover

  • We cut our UMS's FY21-22F earnings forecast by 7.4-7.5% to account for the challenging outlook for its associate and potentially higher tax rate (due to expiry of pioneer tax status for a Malaysian subsidiary in FY21). We believe that UMS will benefit from the bright outlook for its key customer, Applied Materials (AMAT US). Rolling over to FY21F, our target price is raised to S$1.31 based on 2.46x FY21F Gordon Growth P/BV (previously 2.50x).
  • See UMS Share Price; UMS Target Price; UMS Analyst Reports; UMS Dividend History; UMS Announcements; UMS Latest News.
  • Key re-rating catalysts are stronger-than-expected recovery for the semicon industry and better-than-expected performance at its associate.
  • Key downside risks are disruption to the supply chain if the COVID-19 outbreak worsens and higher than expected tax rate due to expiry of pioneer tax status for a Malaysian subsidiary.
  • Given continued guidance from management that UMS is looking for new growth opportunities, we conservatively cut our UMS's FY21 to FY23 dividend assumptions to S$0.035 per year (in line with FY20 dividend).

William TNG CFA CGS-CIMB Research | 2021-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.31 UP 1.270