UMS Holdings - Maybank Kim Eng 2021-03-01: Buying Opportunity

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Buying Opportunity

UMS Holdings (SGX:558)'s core 4Q20 PATMI of S$10.8m (+5.4% y-o-y, -16.7% q-o-q) met the lower end of consensus estimate but missed ours. Headline 4Q20 PATMI fell 86% y-o-y due to impairments relating to Kalf and JEP Holdings (SGX:1J4).
We trim UMS's FY21E earnings per share forecast by 8% as we tweak several cost assumptions. Maintain BUY with slightly lower ROE-g/COE-g target price of S$1.34.
The impairment does not affect our thesis that UMS is a proxy to the ongoing semi equipment upswing. Hence, we see the current sell-off as an opportunity to BUY the dip.

The miss vs our estimates was due to slower-than-expected revenue momentum and FX loss. UMS's 4Q20 revenue grew 9% y-o-y amid the ongoing strength of global semicon equipment demand. We raise FY21-22E revenue forecast by 3% to reflect our incremental confidence of the current upswing.
Despite expectations of higher volumes in 2021E, our net margin estimate for UMS is comparable y-o-y to account for risks of US$ decline.

The one-offs, amounting to S$9.5m, consists of:
1. S$1.1m goodwill impairment in Kalf;
2. S$5.9m impairment of investment in JEP; and
3. UMS’s share of JEP’s goodwill impairment amounting to S$2.5m.
JEP-related impairments were a prudent measure given currently weak aerospace conditions. Management is confident these can be written back when the aerospace market recovers in the long term.

Customer Applied Materials (AMAT) estimates 2020 wafer fabrication equipment (WFE) spending was in the high-US$50b range, and expects 2021 WFE to be slightly above US$70b. Furthermore, AMAT expects to outperform peers in 2021 on the back of robust fundamentals in favour of DRAM investment upswing.
Data centre capex, automotive chip shortages and post-pandemic accelerated digital transformation are also factors that support AMAT’s optimistic outlook. As such, we see upside potential to our FY21 revenue growth estimate of 19% for UMS.
Downside risks are:
- COVID-19 outbreak in UMS’s factories/ supply chains; and/or
- under-estimation of effective tax rate upon the expiry of one of UMS’s pioneer status within FY21E.
AMAT sees strong performance into 2022E.
See UMS Holdings Share Price; UMS Holdings Target Price; UMS Holdings Analyst Reports; UMS Holdings Dividend History; UMS Holdings Announcements; UMS Holdings Latest News.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-01

SGX Stock Analyst Report BUY MAINTAIN BUY 1.34 DOWN 1.410