UMS Holdings - DBS Research 2021-05-11: Soaring With Continued Semiconductor Upswing

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Soaring With Continued Semiconductor Upswing

A strong start to the year with record earnings; above expectations.
Margins stable; interim dividend maintained at S$0.01.
Raised FY21F/FY22F earnings by 17% each, on higher sales and margin projections.
Maintain BUY on UMS with higher target price of S$1.83.

UMS (SGX:558) reported 1Q21 revenue of S$49.6m (+42% y-o-y, +13% q-o-q), driven by the sustained increase in semiconductor demand.
Semiconductor Integrated System sales soared by 75% y-o-y to S$22.6m in 1Q21 while component sales shot up by 28% y-o-y to S$24.1m. 1Q21 net profit of S$15.4m was up 44% y-o-y, and accounts for 31% of our FY21F forecast, above expectations. On a sequential basis, compared to 4Q20, net profit was also 43% higher, excluding the non-cash impairment of about S$9.5m booked in 4Q20.
A S$0.01 interim dividend was declared, similar to last year.

UMS's gross margin of 53.1% in 1Q21 remains comparable to 53.3% in 1Q20 and 53.5% in 4Q20. Net margin of 31% is slightly better than the 30.7% in 1Q20, as the group benefitted from a S$1.3m forex gain, which was partially offset by a provision for project loss from Kalf Engineering and lower contribution from JEP Holdings (SGX:1J4).

Singapore, which accounts for more than 50% of UMS's total revenue, saw a 51% y-o-y surge in sales due to higher shipments of semiconductor Integrated System sales and component sales for new equipment. Sales from Taiwan and Malaysia also jumped by > 50% y-o-y. Sales from the US eased 14% y-o-y due to lower component sales.

According to SEMI, chip demand is currently fuelled by surging pandemic-related demand for electronics devices. Also, the global semiconductor industry is on track to register a rare three consecutive years of record highs in fab equipment spending with a 16% increase in 2020 followed by forecast gains of 15.5% this year and 12% in 2022, reaching US$80bn in spending.
Similarly, in the medium-to-long term, the global semiconductor manufacturing equipment market is expected to continue growing at 9.6% from 2021 through 2026 amid supportive trends led by various technological advancements such as the utilisation of artificial intelligence (AI) solutions and the integration of connected devices with the Internet of Things (IoT).
Meanwhile, the US 3-month semiconductor equipment billings increased 47.9% y-o-y to a record US$3.3bn in March 2021. This is the 18th consecutive y-o-y increase.

Raised UMS's FY21F/FY22F earnings forecast by 17% each. In view of the better-than-expected 1Q21 results, we have raised FY21F/FY22F earnings by 17% each, after factoring in higher sales and margin projections.
On the back of the higher earnings projections, our target price for UMS is raised to S$1.83 (previously S$1.57), still pegged to its peak valuation multiple of 17x (recorded in 2018), on FY21F earnings. This is in line with the methodology for other pure semiconductor plays in our coverage.
See

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-05-11

SGX Stock Analyst Report BUY MAINTAIN BUY 1.83 UP 1.570