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Analysts raise target prices on UMS as it beats expectations for 3Q

Lim Hui Jie
Lim Hui Jie11/17/2021 01:10 PM GMT+08  • 3 min read
Analysts raise target prices on UMS as it beats expectations for 3Q
Analysts all see a bright future for UMS as it continues to ride on the chip shortage.
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Analysts from four brokerages have all maintained their “buy” or “add” calls on UMS Holdings, with three raising their target prices.

Target prices from DBS Group Research, Maybank Kim Eng, CGS-CIMB Research and UOB Kay Hian are at $1.80, $1.71, $1.63 and $1.66 respectively

The previous target prices from DBS, Maybank KE and CGS-CIMB were $1.73, $1.68 and $1.58 respectively, while UOB KH’s target price remained unchanged.

MKE analyst Lai Gene Lih notes that UMS’ profit after tax and minority interest (PATMI) for 3QFY2021 of $15.1m (17% higher y-o-y) was “in line with our estimate and ahead of consensus”.

9MFY2021 PATMI accounted for 71% and 76% of MKE and street’s FY2021 forecasts respectively.

See: UMS reports 3QFY2021 earnings of $15.1 mil, up 17% y-o-y, plans to double capex

See also: RHB keeps 'buy' call and $3.30 price target on Singtel

CGS-CIMB analyst William Tng noted that UMS’ revenue rose 50% y-o-y to $67.6 million in 3QFY2021, beating expectations from the brokerage as well as Bloomberg.

This was due to the strong demand from its semiconductor customers and the consolidation of subsidiary JEP Holdings’ financials.

UMS faced 60% headcount restrictions in its Penang facility in August, and some of this impact was mitigated by transferring production to JEP.

See also: DBS ups Sea Limited's TP to US$103 as it sees a turnaround in its e-commerce and fintech segments

UOB Kay Hian analyst Clement Ho called the acquisition of JEP “timely”, as UMS was able to mitigate the production challenges by utilising JEP's ready production capacity in Singapore.

Lai also noted that since Oct, facilities have resumed full production and headcount, and operations are currently smooth. He says that if not for the production headcount restriction, sales may have been $5-10 million higher.

He also highlights that order momentum from customers is “robust,” and to meet this demand, UMS intends to double capex in FY2022. He estimates a figure of $20 million, and the additional capex will be used for equipment as well as the new factory to be completed in 3QFY2022.

“The new factory may also come in handy in the event UMS wins a new customer, to overcome client confidentiality concerns,” Lai thinks.

As for DBS, they take a wider sector view for UMS, and analyst Ling Lee Keng noted that the recent chip shortage is another shot in the arm for the chip equipment maker.

Recent data points reinforce their “positive industry view”, with Ling noting that industry association SEMI expects continued double-digit growth of semiconductor manufacturing equipment sales to carry on till 2022.

US semiconductor equipment billings remain strong and marked their 24th consecutive monthly increase in September 2021.

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“We remain positive on the semiconductor industry but expect slower growth ahead. We are expecting the industry to grow at a slower CAGR of 5% in 2023-2025, vs the 8% CAGR for the 2020-2025 period,” she writes.

CGS-CIMB’s Tng shares the same view, saying that this current cycle is likely to be stronger than the previous one and that management has guided that the company’s order books are strong.

Potential re-rating catalysts, Tng points out, include stronger-than-expected orders for its semiconductor business, securing new customers for its new Penang plant and faster-than-expected earnings recovery for JEP’s aviation business segment.

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However, he warns that a key risk continues to be operational disruptions arising from potential Covid-19 cases at its Malaysian factory, as evidenced by its 3QFY2021 results commentary.

As at 1.02pm, shares of UMS traded at $1.52, with a FY2021 price to book ratio of 3.4 and dividend yield of 2.7%

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