CFA Society Singapore
SINGAPORE (Mar 1): DBS and CIMB are positive on the outlook of UMS Holdings, maintaining their respective “buy” calls with higher target prices after the group delivered record 4Q profits on higher revenue and a one-off gain.
In a Wednesday report, DBS analyst Carmen Tay says she foresees imminent cost savings to offset the impact of lower average selling prices (ASPs) moving forward, and hence raises earnings projections slightly by 6-8% for FY18-19F.
After rolling forward DBS’s earnings base to FY19F, the research house has arrived at a higher target price of $1.37 from $1.21 previously to imply 12 times FY18F P/E, which is at a discount to the larger peers’ 15 times, while noting that an attractive prospective yield of over 5% is currently on offer.
Tay also bears a positive outlook for the group’s key client Applied Materials, which would, in turn, augur well for UMS given its primary role in the manufacture of components for various semiconductor equipment.
“Historically, c.90% of UMS’s revenues on average can be attributed to Applied Materials. Disruptions to the relationship or weakness in Applied Materials’s end demand could significantly weigh on UMS’s performance,” cautions Tay.
On the other hand, CIMB has raised its target price for the stock to $1.31 from $1.21 previously after raising FY18F EPS by 10.6% to factor in stronger revenue growth.
The new target price is now based on 2.95 times price-to-book value (P/BV), versus 2.88 times previously.
In a separate report, CIMB analyst William Tng says the group’s dividend yield of 5.26% remains attractive, and that he continues to like the stock for its strong cash flow and dividend track record which has continued well into FY17.
Looking ahead, Tng says FY18 could be another record year for the group as guided by its management, which implied that the group’s prospects remain bright.
“The company notes that industry association, SEMI, has projected that global sales of new semiconductor manufacturing equipment will grow 7.5% in 2018. Its key customer [Applied Materials] is also forecasting double-digit revenue and profit growth in 2018. UMS is also ready to take on higher volumes from its major customer as it has enlarged its production capacity in Penang,” says Tng.
As at 11.22am, shares in UMS are trading 1 cent lower at $1.15, or 2.6 times FY18 book.