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


UMS Holdings - Buying Opportunity

Focus on the thesis; Maintain BUY

  • 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.

Moderating our margin assumptions

  • 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.

One-offs drag PATMI

  • 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 upbeat on prospects

  • 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 | 2021-03-01
SGX Stock Analyst Report BUY MAINTAIN BUY 1.34 DOWN 1.410