SINGAPORE (July 22): KGI has upgraded UMS Holdings, which provides equipment and manufacturing services for the semiconductor industry, to ‘neutral’, with a new target price of 89 cents from 74 cents previously. 

Several major semiconductor capital equipment companies have reported that demand for their products did not wane in the second quarter, as they work to fulfill orders pushed back from the initial months of the Covid-19 disruptions.

Applied Materials (AMAT), a US-based semiconductor equipment manufacturer which is UMS’ key client, estimates that US$650 million ($901.5 million) of sales may have been pushed back into later quarters. This should translate to double-digit growth for UMS, says KGI analyst Kenny Tan in his July 22 report.

“Going forward, we think UMS will produce q-o-q outperformance, as production capacity has returned to largely normal levels, which will be fully utilized to rush out the order backlog,” he says.

However, Tan acknowledges that there are some risks to UMS’ growth, namely, tighter Covid-19 lockdown measures in response to second wave outbreaks. There’s also the on-going shift towards de-globalisation which will disrupt established supply chains and trade patterns, no thanks to US-China tensions.

For example, Taiwan Semiconductor Manufacturing Company, a key client of AMAT, has been forced by the US to stop selling chips to China’s Huawei Technologies, with effect from September. 

Nevertheless, TSMC has built up a broad customer base and demand from other users should somewhat offset the foregone orders from Huawei. “We think AMAT, and by proxy UMS, should not see order slowdowns from TSMC,” says Tan.

Under his revised forecast, Tan estimates UMS to generate FY2020 revenue of $148 million, up $11 million from $135 million seen previously. Using a price to earnings estimate of 12 times, he derived the target price of 89 cents.

As at 3.09pm, shares in UMS Holdings were changing hands 1.5 cents lower, or 1.5% down, at 96 cents.