SINGAPORE (Sept 15): Maybank Kim Eng likes UMS Holdings, the high precision components manufacturer, given the group’s strong ties with lead semi-conductor equipment maker Applied Materials.
UMS manufactures the wafer transfer modules used in Applied Materials’ Endura deposition system as well as precision components for other equipment.
UMS supplies 70% of water transfer modules for Endura. It has a strong client relationship with Applied Materials which in 2016, cornered 21% wafer-level equipment market share, according to Gartner.
Management is cautioning moderate demand from Applied Materials in 2H17 but this could be transitory, given short term inventory gestation on the client’s end.
The reduced average selling price of the new Endura contract was also due to reduced scope for third-party input. Although this might be top line sensitive, management says this will have minimal impact on margin.
Nevertheless, management remains optimistic towards growth prospects over the medium term, driven by a new generation of chips design to cater for Internet of Things (IoT) and Big Data.
In an unrated report on Thursday, analyst Neel Sinha says, “UMS views high switching costs as a competitive advantage. It has full vertical integration, and is qualified for over 50 special semi-con equipment manufacturing processes that ensure stringent quality control and short lead time.”
In 3Q17, UMS will be shifting its Endura production process to its new plant in Penang, which is expected to reap meaningful operational expenditure and longer term tax savings.
“Total capex for the new plant is RM80 million ($25.7 million) over 4-5 years, and it is mainly to cater for Applied Materials’ optimism towards Endura’s longer term growth trajectory,” says Sinha.
As at 10.13am, shares in UMS are trading at 93 cents or about 16.5 times FY16 earnings per share of 5.6 cents with net dividend yield of 5.4%.
