Maybank Kim Eng’s Lai Gene Lih has maintained his “buy” call on UMS Holdings with an unchanged target price of $1.41.
See also: CGS-CIMB upgrades UMS to ‘buy’, other analysts also positive
Lai sees the company as a “proxy” to the global semiconductor equipment spending upswing through its key customer Applied Materials (AMAT).
Around half of UMS’s semiconductor revenue is composed of the wafer transfer modules for Endura, the most widely used deposition platform globally, while the other half are components for AMAT’s other semiconductor platforms.
He notes that AMAT is optimistic of its FY21 prospects on the back of sustained logic-foundry spending and the recovery of memory spending.
AMAT also views AI as a “trillion-dollar” inflection that it is well positioned to capitalise, given its core expertise in materials engineering.
As such, Lai forecasts earnings per share (EPS) to grow in FY2020 and FY2021 by 46% and 25% respectively, on the back of the upcycle in semiconductor equipment spending.
He said UMS is conserving cash to capture near-term growth opportunities – which may require capacity expansion if such opportunities materialise.
“This could be in the form of a new customer, which we believe provides growth and diversification in the long-run, if it pans out.” Lai added.
RHB Group Research’s Jarick Seet, in an unrated report, called UMS as a “proxy” for the semiconductor industry’s recovery.
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He elaborated that management expects the semiconductor industry to continue recovering in 2020. As such, UMS should continue to benefit from sustained capital equipment spending and the global memory rebound.
There are also signs that inventories are stabilising, and the dynamic random-access memory (DRAM) pricing is likely to rise.
The Semiconductor Equipment Manufacturing Industry (SEMI) expects equipment sales to increase by 5.5% to US$60.8 billion ($81.6 billion) in 2020, on advance logic and foundry spending as well as new projects in China.
Chip sales have bottomed out, and are forecasted to improve, but the industry is unlikely to see a V-shaped recovery as moderate growth is more plausible. UMS is also working closely with its customers on mitigation measures to ensure minimal disruptions stemming from the Covid-19 pandemic to operations, which affected its supply chain in China.
Seet said with the company’s strong balance sheet, management rewarded shareholders with a special dividend that took total FY2019 distribution per share (DPS) to four cents, reflecting an “attractive yield” of 4.9%.
“With profitability expected to increase along with a brighter outlook, we are positive on it maintaining the dividend ratio, with the possibility of an increase going forward.” Seet said
As at 2.55pm, shares of UMS were trading at $1.03, with a FY2020 price to book ratio of 2.0 and dividend yield of 4%, according to Maybank Kim Eng.
