UOB Kay Hian Research’s Clement Ho has maintained his “buy” call on UMS Holdings and increased his target price from $1.65 to $1.92.
The higher target price comes as the near-term supply shock from the chip shortage situation would transition into longer-term demand sustainability due to emerging technologies, according to indications from upstream foundries.
This, Ho says in a July 1 report, will benefit UMS and key client Applied Materials (AMAT).
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He added that in the recent 2QFY2021 earnings transcript released by AMAT in May, the semiconductor giant disclosed that customers, for the first time, provided capital spending guidance for multiple years ahead. which “will be a leading indicator for demand sustainability,”
This also supports his view that the ongoing massive capex spending, and supercycle in the semiconductor industry, will bode well for UMS.
This will lift overall factory utilisation rates and revenue above the $200 million mark for the first time in 2021. In comparison, average revenue was $124 million, which ranged between $110-$164million.
In the broader industry, Ho also notes that comments from TSMC, Samsung and Intel suggest rising capital spending to last till 2023.
“Furthermore, global foundry giants Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and Intel Corp are leading the record spending across the semiconductor industry to capture the “rampaging” chip demand, underpinned by new emerging technologies including 5G, Internet of Things, autonomous driving, and artificial intelligence,” Ho points out.
TSMC also expects to invest US$100 billion ($134.4 million) over the next three years in capital spending, of which a large portion would be channelled towards chip manufacturing equipment, which AMAT’s Endura platform falls under.
Finally, the recent completion of the general offer for JEP Holdings has resulted in the increase of shareholding in the associate’s shareholding from 40.7% to become a subsidiary with a 71.4% stake.
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For FY2020, JEP recorded a net profit of $0.3 million, sharply down from FY2019’s figure of $6.5 million. The profit figure also included a $4 million payout of government grant support in relation to Covid-19. FY2020 revenue slowed 17.6% y-o-y to $73.3m, impacted by the pandemic.
Shares of UMS closed at $1.53, one cent higher and up 0.66%. At this level, it trades at a price to book ratio of 2.7 and dividend yield of 2.8%
