Analysts from CGS-CIMB Research, Maybank Kim Eng and KGI Research are upbeat on UMS Holdings after its 1QFY2021 ended March earnings beat their estimates.

CGS-CIMB kept its ‘add’ call, while Maybank Kim Eng and KGI kept their ‘buy’ and ‘outperform’ ratings. All three brokerages raised target prices to $1.58, $1.80 and $1.51 respectively in anticipation of strong profit for FY2021.

CGS-CIMB’s William Tng notes that UMS’s 1QFY2021 net profit of $15.4 million was just $0.4 million shy of the quarterly net profit peak of $15.8 million in the 4QFY2017, with UMS achieving a full-year net profit of $52 million for FY2017.

To that end, Tng has raised revenue forecasts for FY2021 - FY2023 by 9.5-16.4% to account for the strong industry growth prospects, resulting in a 22.1% - 28.2% increase in net profit forecasts over the same period.

Given the current super cycle, Tng says his valuation is still based on 2.893 times P/BV, equivalent to the peak P/BV achieved over the FY2016 - FY2018 upcycle, leading to a higher target price of $1.58 from $1.53 previously. 

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Maybank Kim Eng’s Gene Lih Lai is confident that UMS should see sequential growth in future quarters for FY2021, in line with key client Applied Materials’ (AMAT) expectations.

SEE:DBS optimistic on UMS as semicon upswing continues

“UMS remains our top pick in the SG tech sector as it has the highest exposure to wafer fabrication equipment (WFE) spending, which in turn is the best way to play current chip shortages, in our view,” he says.

He also notes that risk of raw material shortages are low, given that UMS plans its needs with materials distribution arm Starke and is also securing components via advanced payments. “In our view, the biggest risk is if the Covid-19 situation in Malaysia deteriorates to the point where manufacturing of essential goods is jeopardised,” he says.

His higher target price of $1.80 (previously $1.57) comes on the back of raised FY2021 - FY22 EPS forecasts by 11% - 14.5%, pegged to an unchanged FY2021 P/E of 15 times.

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Meanwhile, KGI’s Tan Jiunn Chyuan trimmed gross margin forecasts by 20 basis points given the rising cost of basic materials as well as price competition from the component sales division. However, he reduced estimates for depreciation and selling, general and administrative expense estimates. 

"Recent market momentum has been bearish for tech and semiconductor stocks, creating opportunities for accumulation. Investors can collect a 3.1% yield dividend in the meantime," he says.

Overall, his target price, pegged to a P/E of 15 times, rose to $1.51 from $1.43 previously.

As at 4.26pm, shares in UMS were up 5 cents or 3.91% at $1.33.