KGI Securities Research has maintained its ‘outperform’ on UMS Holdings with a higher target price of $1.43 from $1.22 previously following its 4Q2020 results ended December 2020.

The higher target price is underpinned by a slightly higher P/E of 15 times, on better than expected associate contributions, improved margins, and further clarity on UMS’s expansion initiatives.

USM’ 4Q2020 sales were up 9% y-o-y at $44.1 million, bringing FY2020 sales up 24.6% y-o-y at $164.4 million. Gross margins were up 40 basis points y-o-y to 53.3%.

Despite the semiconductor segment outperforming Tan’s expectations, underperformance from non-semiconductor business due to goodwill impairment Kalf Engineering as well as JEP Holdings brought profit below his estimates.

Looking ahead, Tan is bullish on the semiconductor capital equipment industry on news of chip shortages. He also notes that UMS’ key customer Applied Materials (AMAT) has continued providing forward forecasts that are above consensus estimates. Semiconductor systems’ 2QFY2021 ending April forecast of US$3.85 billion ($5.17 billion) is now the highest ever in the AMAT’s history.


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SEE:UOB Kay Hian initiates coverage on UMS Holdings with 'buy' rating, TP of $1.65


Tan views that UMS management’s decision to cut dividend is in line with the increasing possibility of a new customer win, which will lead to further capital expenditure and improved revenue diversification.

To that end, Tan’s base case sales growth is now 19% and 8% for FY2021 and FY2022, following assumptions for semiconductor sales y-o-y growth for FY2021 of 15%, 20% or 25% for bear, base, and bull cases respectively. Meanwhile, non-semiconductor sales are now estimated at 4% growth y-o-y.

His dividend per share (DPS) forecasts are maintained at 4 cents per share despite UMS cutting DPS to 3.5 cents in FY2020. 

“We increase tax rate forecast as UMS may be unable to renew its pioneer tax-free status, which expires late 2020/early 2021,” he adds.

Shares in UMS closed 1 cent or 0.8% higher at $1.26 on March 19.