UMS Holdings - CGS-CIMB Research 2021-05-11: Bringing Home The Bacon

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Bringing Home The Bacon

UMS's 1Q21 net profit was above expectations, at 31%/29% of our/consensus full-year forecasts.
We believe UMS is likely to see a record-high net profit in FY21F (last peak was S$52.0m in FY17).
Reiterate ADD with a higher target price of S$1.58.

UMS (SGX:558)'s 1Q21 revenue grew 42% y-o-y to S$49.6m while net profit grew 44% y-o-y to S$15.4m. 1Q21 net profit of S$15.4m was just S$0.4m shy of the quarterly net profit peak of S$15.8m in 4Q17. That year, UMS achieved a net profit of S$52.0m.
Gross material margin was 53.1% in 1Q21 versus 53.3% in 1Q20 and 53.5% in 4Q20.
At 27%/26% of our/consensus full-year forecasts, 1Q21 revenue was ahead of expectations. Similarly, 1Q21 net profit at 31%/29% of our/consensus full-year forecasts was also ahead.
UMS enjoyed strong demand from its key customer which continues to benefit from accelerating capex from semiconductor chip makers. During the quarter, UMS also benefitted from a foreign exchange gain of S$1.3m. A dividend of S$0.01 (1Q20: S$0.01) was declared.

UMS is optimistic about its outlook for FY21F, citing research from SEMI which projects that global fab equipment spending could grow 15.5% y-o-y in 2021 followed by 12.0% y-o-y growth in 2022. The company also noted that its key customer recently guided for buoyant outlook ahead, and expects to substantially outgrow its markets again in 2021 and beyond. UMS believes this supports its optimistic view for FY21F.

We raise our revenue forecasts for FY21F-23F by 9.5-16.4% (supported by strong industry growth prospects) leading to a 22.1-28.2% increase in our net profit forecast over the same period.
Given the current super cycle, our valuation for UMS is still based on 2.893x (the peak P/BV achieved over the FY16-18 upcycle), leading to a higher target price of S$1.58 (previously S$1.53) as our FY21F book value per share reflects our new earnings estimates.
See
Potential re-rating catalysts include stronger-than-expected orders for its semiconductor business and better-than-expected performance of JEP Holdings (SGX:1J4).
As at 10 May, UMS’s stake in JEP was 56.43% (UMS has an ongoing offer to acquire the rest of the stake in JEP). Completion of the offer will allow UMS to consolidate JEP’s financials (see figure 6 in report attached below for pro-forma impact on FY20 financials as disclosed by UMS).
Downside risks are disruption to the supply chain if the COVID-19 outbreak worsens and higher-than-expected tax rate due to the expiry of pioneer tax status for a Malaysian subsidiary.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-11

SGX Stock Analyst Report ADD MAINTAIN ADD 1.58 UP 1.530