UMS Holdings - CGS-CIMB Research 2021-07-29: A Rare 3-Year Earnings Upcycle


UMS Holdings - A Rare 3-Year Earnings Upcycle

  • We believe UMS (SGX:558) could report more than 33% y-o-y net profit growth for 2Q21F when it announces its results in the week of 9 Aug.
  • Industry outlook remains strong and we think UMS has been coping well with the COVID-19 restrictions imposed by the Malaysian government.
  • Reiterate ADD on UMS with a higher S$1.97 target price as we switch to P/E valuation, reflecting our confidence in a rare 3-year earnings upcycle for UMS.

UMS's 2Q21F net profit likely grew more than 33% y-o-y

  • Taking reference from last year’s 2Q20 results release date of 13 Aug, we expect UMS to report its 2Q21 results in the week of 9 Aug.
  • Given the current strong industry outlook, we believe UMS would report a minimum 33% y-o-y growth rate for its 2Q21F net profit. It reported a net profit of S$15.4m for 1Q21. If we conservatively assume that 2Q21F net profit only matched that of 1Q21 despite the strong industry outlook, y-o-y net profit growth could hit a minimum of 33% vs 2Q20 net profit of S$11.6m.

Industry outlook remains strong

  • According to a 22 Jun update by Semiconductor Equipment and Materials International (SEMI), semiconductor makers will have commenced construction on 19 new high-volume fabs by the end of 2021, and will break ground on another 10 fabs in 2022 to meet the accelerating demand for chips. SEMI expects equipment spending for these 29 fabs to exceed US$140bn over the next few years.

JEP offer concluded

  • UMS’s mandatory unconditional cash offer for JEP Holdings (SGX:1J4) shares closed on 2 Jun 2021 with UMS obtaining a 71.66% stake in JEP. As UMS’s stake in JEP crossed the 50% level on 21 Apr 2021, we believe UMS will consolidate two months (May and Jun) of JEP’s financials into its 2Q21F results.

Raising earnings forecast on strong outlook for UMS in FY21-23F

  • Given the strong global fab spending, we raise our FY21-23F revenue forecasts for UMS by 5.4%, leading to 6.9-8.5% increase in our EPS forecasts. Given UMS’s current earnings super cycle, we address investors’ desire to understand the upper bound of UMS valuation in this cycle by reference to the forward peak P/E multiple of 14.45x achieved in the FY16- 18 upcycle.
  • Our target price for UMS rises to S$1.97 based on FY22F EPS (previously we used FY16-18 peak P/BV multiple of 2.893x).
  • See
  • Potential re-rating catalysts include stronger-than-expected orders for its semiconductor business and faster-than-expected business recovery for JEP.
  • COVID-19 related business disruption is the key risk in the short term. As UMS will be incorporating JEP’s financials in its 2Q21 results release, we will revisit our FY21-23F earnings forecasts after.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-29
SGX Stock Analyst Report ADD MAINTAIN ADD 1.97 UP 1.580