Maybank Kim Eng has maintained its “buy” call on UMS Holdings with an unchanged target price of $1.36.
In a note on Oct 1, analyst Lai Gene Lih said UMS did not incur any significant environmental fines in 2019, and had zero reported incidences of discrimination or corruption. He added that related-party transactions were carried out “at arm’s length”.
Lai cited transactions the UMS made with Sure Achieve Consultant (where the wife of the founder Andy Luong is a director), as well as with Kalf Engineering, where Luong and Stanley Loh (group financial controller) have an interest.
However, he said these transactions were done on normal commercial terms.
Most importantly, UMS’s key customer Applied Materials (AMAT) believes strong earnings momentum can be extended into next year, and Gene sees that UMS can capitalise on these opportunities from its key customer.
He pointed to a recent technology conference which AMAT reiterated its optimism that this year’s revenue strength may be extended into next year, as customers continue to invest in roadmaps.
Despite extreme ultraviolet (EUV) technology, AMAT is confident that its position will strengthen in future nodes from opportunities to co-optimise deposition and etch processes.
In addition, Lai noted that stakeholders see governance, economic performance, product compliance and customer privacy as the most important factors to ensure sustainability.
UMS adopts a localisation strategy for overseas operations to ensure on-the-ground teams have a good grasp of local socio-political and cultural sensitivities.
However, Lai said UMS’ environmental exposure is primarily through energy, water and waste disposal.
While it did not meet its energy and water intensity targets in 2019, hazardous waste from the production process is disposed of in compliance with regulations, and scrap materials were recycled where possible.
Some upside factors he foresees for the counter include an “earlier-than-expected recovery in investments from memory semiconductor players” as well as “better-than-expected contributions from Kalf Engineering, Starke and JEP.”
On the other hand, Lai warned that risks include further deterioration in US-China trade relations, resulting in delayed semiconductor equipment spending, as well as “weaker-than-expected margins due to negative operating leverage if volume falls.”
As at 12.47pm, shares of UMS were trading at 98 cents, with a FY20 price to book ratio of 2.0 and dividend yield of 6.3%.
