Analysts from CGS-CIMB and DBS Group Research have maintained their buy rating on UMS Holdings, but DBS has raised their target price from $1.70 to $1.83.
DBS analyst Ling Lee Keng explained the raised target price by pointing at UMS’s strong order forecasts from its key customer, Applied Materials (AMAT).
The US semiconductor equipment maker expects “sales to increase despite the impact of the ongoing supply chain challenges in FY2022.
Ling says this bodes well for UMS, and the growth momentum is expected to be strong in the coming months,” writes Ling in her Aug 16 report.
Furthermore, she notes that UMS will carry on with its expansion plans, with its new Penang factory scheduled for completion by the end of 2022, despite some global chipmakers softening their forecasts and scaling down their capex plans in view of the expected global economic slowdown.
The new factory will substantially increase the current production capacity and position the group well to take on new orders from potential customers that are expanding in Southeast Asia.
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As such, she takes a more bullish stance, and expects UMS to benefit from the positive developments in the semiconductor industry.
However, she does warn about a concentration risk for UMS, highlighting that historically, around 90% of UMS’s average revenue has been from AMAT.
As such, disruptions to the relationship or weakness in AMAT’s end demand could significantly weigh on UMS’s performance.
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Separately, CGS-CIMB analyst William Tng maintains his target price of $1.63, and while he broadly agrees with Ling’s points, he does note that ‘demand looks strong despite macro concerns.
Some re-rating catalysts for UMS, Tng thinks, are the ability to secure new customers for its new Penang plant, a faster-than-expected earnings recovery for JEP’s aviation business segment, and a favourable resolution of its tax issue with the Malaysian authorities, which had pushed up its tax expenses in Malaysia.
On the other hand, downside risks are high raw material prices and a failure to renew its contract with a key customer.
As of 12.46pm, shares of UMS are trading at $1.23, with a FY2022 P/B ratio of 2.56 and dividend yield of 4.13%.
