UMS Holdings
Price target:
KGI Securities “neutral” $0.89
Upgrade thanks to pent up semicon demand
KGI has upgraded UMS Holdings, which provides equipment and manufacturing services for the semiconductor industry to “neutral”, with a new target price of $0.89 from $0.74 previously.
Several major semiconductor capital equipment companies have reported that demand for their products did not wane in the second quarter, as they work to fulfil orders pushed back from the initial months of the Covid-19 disruptions.
Applied Materials (AMAT), a US-based semiconductor equipment manufacturer which is UMS’ key client, estimates that US$650 million ($900.3 million) of sales may have been pushed back into later quarters. This should translate to double-digit growth for UMS, says KGI analyst Kenny Tan in his July 22 report.
“Going forward, we think UMS will produce q-o-q outperformance, as production capacity has returned to largely normal levels, which will be fully utilized to rush out the order backlog,” he says.
However, Tan acknowledges that there are some risks to UMS’ growth, namely, tighter Covid-19 lockdown measures in response to second wave outbreaks. There is also the on-going shift towards de-globalisation which will disrupt established supply chains and trade patterns, no thanks to US-China tensions.
For example, Taiwan Semiconductor Manufacturing Company — a key client of AMAT — has been forced by the US to stop selling chips to Huawei Technologies from China with effect from September.
Nevertheless, TSMC has built up a broad customer base and demand from other users should somewhat offset the foregone orders from Huawei. “We think AMAT, and by proxy UMS, should not see order slowdowns from TSMC,” says Tan.
Under his revised forecast, Tan estimates UMS to generate FY2020 revenue of $148 million, up $11 million from $135 million seen previously. Using a price to earnings estimate of 12 times, he derived the target price of $0.89. — Kayla Whang
Hyphens Pharma International
Price target:
PhillipCapital “accumulate” $0.435
Extensive portfolio drives growth
PhillipCapital has initiated coverage on specialty pharmaceutical and consumer healthcare group Hyphens Pharma International with an “accumulate” call, with a target price of $0.435.
Analyst Tay Wee Kuang likes Hyphens Pharma for its position as the sole regional product owner of an extensive portfolio of pharmaceutical and health supplement products. It has also built up its product portfolio by entering into exclusive distributorship or licensing and supply agreements with brand principals such as Sofibel and Guerbet, as well as developing its own suite of dermatological and health supplement products through its brands Ceradan, TDF and Ocean Health.
Furthermore, exclusive ownership of its product portfolio allows Hyphens Pharma to enjoy customer loyalty and a pricing premium. Portfolio sales combined contributed 67% of Hyphens Pharma’s revenue in FY2019, with the remaining 33% contributed by the Medical Hypermart and Digital segment.
In Singapore, Tay said Hyphens Pharma’s 2016 acquisition of Ocean Health introduced the company’s portfolio into the retail market. As Ocean Health has an established retail presence in the local pharmacies such as Guardian and Watson’s, this provided Hyphens Pharma with valuable additions to its portfolio, as well as securing shelf space in the retail space for other products within its portfolio.
Apart from expanding into the physical retail space, Hyphens Pharma has also moved its products to e-commerce platforms such as Lazada, RedMart and Shopee. Tay thinks Hyphens will continue to enjoy top-line growth of its products, as its footprint in the consumer sector grows.
Finally, Tay also notes that by establishing itself within the value chain by undertaking high-value business functions such as sales and marketing for its extensive product portfolio while outsourcing capital-intensive functions such as production and logistics, Hyphens Pharma has managed to pursue an “asset-light” business model.
As a result, Hyphens Pharma is able to maintain a high margin business, with expenses contributed largely by marketing and distribution and maintaining low capital expenditure over the past five years. — Lim Hui Jie
Mapletree Industrial Trust
Price target:
DBS “buy” $3.25
Buoyed by cautious cash management, US data centre acquisition Mapletree Industrial Trust (MIT) has weathered the brunt of Singapore’s “circuit breaker” measures earlier this year and is now riding on digital tailwinds, thanks in part to its “cautious stance” in cash management, say DBS Group Research analysts Derek Tan and Dale Lai in a July 22 report. DBS maintains its “buy” call on the company with a target price of $3.25.
As 1QFY2021 suffered the full brunt of the circuit breaker during April to May, MIT withheld $7.1 million (or a total of $13.7 million since 4QFY2020) from its tax-exempt income to maintain flexibility in cash management, note Tan and Lai.
“The total amount withheld is expected to be released from 2QFY2021 onwards when the majority of rebates are expected to be expensed. Overall financial performance was in line with expectations.”
In addition, around 70% of the company’s tenants are in the essential services sector and continued operating during the circuit breaker, say analysts. Approximately 90% of its tenants in Singapore have now resumed operations.
“The manager estimates that overall rental reliefs (either mandatory or planned) could amount to $20 million in FY2021, which we have factored into our estimates. The retained sum of $13.7 million will be paid out in stages to negate the impact of these reliefs in the coming quarter,” say Tan and Lai.
In June, Mapletree Industrial Trust replaced Singapore Press Holdings on the Straits Times Index (STI), joining the 30-constituent stocks on the index. Earlier this month, the company acquired a 60% stake in 14 US data centres, touted as a likely key earning driver in 2HFY2021.
On earnings, the company’s 1QFY2021 revenues declined 0.5% y-o-y to $99.1 million while net property income (NPI) increased by 0.9% to $78.7 million. “The weaker topline came mainly from rental rebates as part of its Covid-19 Assistance and Relief Programme, slightly offset by the full quarter revenue contribution from 7 Tai Seng, The Strategy and 30A Kallang Place,” say analysts.
Distributable income rose by 11.6% to $70.6 million, driven by higher contribution from its joint ventures from its expanded US data centre portfolio. “After retaining $7.1 million, DPU was 2.87 cents (–7.4% y-o-y, 0.7% q-o-q), in line with our projections.”
Given the fragile economic outlook, the manufacturing sector is expected to be impacted and MIT, as one of the largest landlords in Singapore, will likely be hit, say analysts. “We believe the Manager will take on the strategy of managing occupancy at the expense of rental growth in FY2021 in order to defend cash flows.”
That said, the company’s operating metrics remain “resilient”, say the analysts, with a portfolio occupancy table at 91.1%, compared to 91.5% in 4QFY2020. “Retention rate was high at approximately 81% for the quarter, which we reckon was due to the lack of movement and relocation during the circuit breaker.”
“We remain excited on MIT’s outlook, driven by the completion of its planned acquisition of a 60% stake in 14 data centres in the US in 2QFY2021, ongoing asset rejuvenation from the development of Kolam Ayer 2 cluster coupled with full-year contribution from its 50% stake in 13 data centres in the US that was completed last quarter.” — Jovi Ho
