With semiconductor equipment manufacturing slated to expand in Asia, manufacturing company UMS Holdings is poised to capture strong mounting momentum in the coming quarter. The company posted 34.5% y-o-y growth in sales for 2Q20, with an above average profit margin of 28.7% for the same period, notes KGI Securities analyst Tan Jiunn Chyuan.
Tan is maintaining “neutral” on the manufacturer with a raised target price of $1.17 from 89 cents.
UMS Holdings is an integrated original equipment manufacturer (OEM) for front-end semiconductor equipment manufacturing, providing both component manufacturing and sub-assembly services, primarily to key client, Applied Materials (AMAT).
“A key topic on AMAT’s earnings call was the disclosure of AMAT’s deposition sales in 2019 – around US$5.2 billion ($7.12 billion), and roughly an 8% market share gain,” says Tan in an August 17 note.
UMS management echoed the sentiment for strength in the semiconductor division, with expectations for 2H20 results to be stronger than 1H20, adds Tan. “However, management expects weakness in subsidiary and associate businesses, given Covid-19-induced industry headwinds, and the impact will appear on the books soon, in 2H20.”
Last week, DBS Research Group analyst Ling Lee Keng maintained her “buy” call on UMS Holdings at a higher target price of $1.37, previously $1.04. She cited data from SEMI – Semiconductor Equipment Materials International – that semiconductor equipment manufacturing is slated to increase 6% y-o-y in 2020 to US$63.2 billion and 17.4% to US$70 billion in 2021.
“We remain positive on the semiconductor sector, on the back of acceleration of 5G, artificial intelligence (AI) and other technology-driven developments such as Smart Cities and increased demand for data,” she writes in an August 14 note.
Asia is believed to be the “key powerhouse” for the semiconductor expansion and “is forecast to lead the pack in capital spending in 2020,” says Ling.
Likewise, CGS-CIMB analyst William Tng is optimistic about the company’s outlook, downgrading from “hold” to “add” with a raised target price of $1.10 from 96 cents.
“2Q2020 performance was helped by a 12% y-o-y increase in associate earnings. Its associate, JEP, benefitted from government grants to help combat the Covid-19 pandemic,” says Tng in an August 14 note.
“UMS expects to benefit indirectly from the vibrant chip equipment manufacturing market. In 2H2020F, we believe UMS’ system integration business will see better results h-o-h while JEP could also breakeven, at worst, due to government grants and strong performance in JEP’s semicon-related business segment.”
Maybank holds a similarly rosy view on the company as it “clears backlog from 1Q2020”, with analyst Lai Gene Lih recommending “buy” on UMS Holdings with a raised target price of $1.36.
“While we believe downside may be limited give the attractive yield, we would also be buyers on dips on the back of robust earnings visibility. In our view, key risks are return of supply chain disruptions and extended macroeconomic uncertainty that may erode the resilience of semiconductor equipment spending,” says Lai in an August 14 note.
As at 1.23pm, shares in UMS Holdings are trading at 2 cents lower, or 1.89% down, at $1.04.
