UMS Holdings - SAC Capital 2021-05-13: Good Start To The Year


UMS Holdings - Good Start To The Year

High demand continues in 1QFY21

  • UMS (SGX:558) posted a record quarter in 1QFY21 as revenue increased 42.3% y-o-y from S$34.9 million to S$49.6 million. This was mainly due to higher integrated system and component sales tied to the strong global demand. The semiconductor segment surged 47.3% to S$46.7 million, whereas the Others segment decreased 9.1% to S$2.9 million with lower revenue from Starke Singapore.
  • UMS's net profit rose by 43.6% from S$10.7 million to S$15.4 million in 1QFY21. Gross margin is stable at 53.1% (from 53.3% in 1QFY20).
  • We expect continued growth of the semiconductor segment, driven by strong systems and component sales stemming from higher chip demand. TSMC has set a capex budget of US$25bn to US$28bn for 2021, up from US$17.2bn in 2020. Intel also announced a US$20bn investment to build two new fabs.

JEP Holdings became a subsidiary

  • UMS had made an offer in April to acquire JEP Holdings (SGX:1J4), increasing their stake from 40.7% previously during our update to 57.88% (as at 11 May), making JEP a subsidiary. Management guided that they took into account the future of the aviation sector and believe the future recovery will put them in a position to take on more orders.
  • Previously-associate JEP contributed S$0.3 million to UMS’s 1QFY21 profit, down 70% from the S$0.9 million contribution last year. JEP produces precision machining parts for OEMs that operate in the aviation sector, which accounts for 58.8% of its FY2020 revenue. It also manufactures equipment and engages in trading.

Order book of Applied Materials expected to remain strong

  • Applied Materials is expected to continue to benefit from higher manufacturing equipment sales with the global chip shortage. Applied Materials’ revenue is expected to grow 4.8% q-o-q and 2.1% q-o-q in Q2 and Q3 respectively. Consensus estimates for Q3 (ending 31 July 2021) net income is at US$1.43bn.
  • We continue to believe sales will rise through the fiscal year 2021, benefitting from solid demand for foundry and logic-chip, with ongoing shift to next-generation technologies such as 5- and 3-nanometer chips for 5G and data centres. Digital transformation of companies and the accelerating economy are multi-year growth drivers for the semiconductor industry.

Downgrade to HOLD despite increasing our target price to S$1.46

  • We downgrade UMS to a HOLD rating while increasing UMS's fair value estimate to S$1.46 (from S$1.38) using P/E valuation. Our target pricefor UMS is based on a FY21E P/E of 17.6x, in line with the Singapore sector average P/E of 17.6x.
  • We adjusted our estimates to account for subsidiary JEP’s financials (FY21E revenue: +42.2%, PATMI: +1.4%). We believe JEP’s growth will still be muted in Q2 in light of the ongoing hit in the aviation sector. We expect the semiconductor segment will lead growth with sustained demand for advanced chipsets. Despite that, we believe some of the positives had been priced in.
  • Our target price implies a 10.9% upside to UMS's last traded share price.
  • See

Lim Li Jun Tracy SAC Capital Research | Lam Wang Kwan SAC Capital | https://www.saccapital.com.sg/ 2021-05-13
SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.46 UP 1.380