Analysts from DBS Group Research, Maybank Kim Eng and CGS-CIMB Research have improved their forecasts on UMS holdings, with DBS and Maybank raising their target prices and CGS-CIMB raising its revenue forecast for the FY2021 to FY2023.
All three brokerages have maintained their “add” and “buy” calls.
DBS’ Ling Lee Keng has raised her target price from $1.83 to $2.16, while Maybank’s Lai Gene Lih has upped his target price from $1.80 to $2.10.
CGS-CIMB’s William Tng kept his target price unchanged at $1.97, but has raised his revenue forecast for FY2021 to FY2023 to 8.2% from 7.6%, to reflect the inclusion of JEP’s financials, and to account for JEP as a subsidiary of UMS.
See also: UMS Holdings' 2QFY2021 earnings up 46% y-o-y to $16.9 mil
Tng notes that while demand is strong for UMS, challenging operating conditions in its Malaysian factory from the Covid-19 pandemic remain a key risk.
UMS reported a 66% y-o-y growth in its 2QFY2021 revenue to $66.8 million, while core net profit rose 46% y-o-y to $16.9 million. The revenue figure, Tng says, stood “above expectations due to the consolidation of JEP’s revenue for the months of May and June 2021.”
UMS increased its stake in JEP to 71.39% (on June 2) and consolidated $11.2m in revenue from JEP.
With these results, UMS maintained its 2QFY2021 distribution per share at one cent per share and announced a 1-for-4 bonus issue.
Tng notes that the semiconductor business remained the main revenue and profit contributor, elaborating that semiconductor-related sales grew 52.8% y-o-y and accounted for 90.5% of group revenue in 1HFY2021.
In terms of pre-tax profit, the semiconductor business segment accounted for 90.9% of the group’s pre-tax profit and grew 44.7% y-o-y.
Maybank’s Lai pointed out that semiconductor sales grew 25% q-o-q from 1QFY2021 to 2Q, and said this was achieved despite worker cap restrictions of 60% in Penang.
Gross margin rose 1% y-o-y to 51.8% due to a higher mix of components, but was down 1.3% q-o-q as the consolidation of JEP is margin-dilutive.
Moving forward, Lai writes that UMS is seeing strong order flow as its customer, (believed to be US-listed Applied Materials) experiences broad-based strength in its semiconductor business. “From a supply perspective, we believe the easing of worker restrictions to 80% in Penang; and JEP’s available capacity to handle semicon equipment components in Singapore are incremental positives that could provide upside,” he says.
Furthermore, he highlights that vaccination efforts in Penang are “progressing well”, although vaccination rates were not disclosed.
DBS’ Ling takes a wider sector view, writing that the company is poised to ride on rising global chip demand. She says the demand is fueled by the acceleration of 5G, artificial intelligence (AI), and other technology-driven developments.
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In addition, she thinks that the recent chip shortage is another “shot in the arm” for the chip equipment maker.
Ling also highlights that industry association SEMI expects continued double-digit growth of semiconductor manufacturing equipment sales to carry on till 2022, adding that US semiconductor equipment billings remain strong and marked their 21st consecutive monthly increase in June 2022.
As for UMS’ key customer AMAT, Ling says it is expected to register a strong 58% earnings growth in FY2021 and another 11% in FY2022, which bodes well for UMS.
As at 12.58 pm, shares of UMS were trading at $1.69, with a FY2021 price to book ratio of 2 and dividend yield of 3.2%, according to DBS.
