DBS Group Research’s Ling Lee Keng has maintained her “buy” call and raised her target price for UMS Holdings to $1.83 from $1.57.
In a May 11 report, Ling noted “a strong start to the year” for UMS, pointing out that the company has recorded 1QFY2021 revenue of $49.6 million, which is up 42% y-o-y, and 13% higher q-o-q.
This was driven by the sustained increase in semiconductor demand. Furthermore, 1QFY2021 net profit of $15.4 million was up 44% y-o-y, and accounts for 31% of DBS’s FY2021 forecast, which is above expectations.
See: UMS Holdings posts 44% increase in earnings for 1Q21, declares interim DPS of 1 cent
Ling says that UMS is poised to ride on rising global chip demand, on the back of the acceleration of 5G, artificial intelligence (AI) and other technology-driven developments.
“Recent data points reinforce our positive industry view.” she says, adding that industry association SEMI expects continued double-digit growth of semiconductor manufacturing equipment sales to carry on till 2022.
They elaborated that the global semiconductor industry is on track to register a rare three consecutive years of record highs in fab equipment spending with a 16% increase in 2020 followed by forecast gains of 15.5% this year and 12% in 2022, reaching US$80 billion ($106.02 billion) in spending.
In the medium-to-long term, the global semiconductor manufacturing equipment market is expected to continue growing at 9.6% from 2021 through 2026 amid supportive trends led by various technological advancements such as the utilisation of artificial intelligence (AI) solutions and the integration of connected devices with the Internet of Things (IoT).
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Furthermore, Ling notes for UMS that US semiconductor equipment billings remain strong and marked their 18th consecutive monthly increase in March 2021, rising 47.9% y-o-y. UMS key customer Applied Materials (AMAT) is expected to register 44% earnings growth in FY2021 and another 10% in FY2022, which bodes well for UMS.
As Ling is more bullish on the stock, and expects UMS to benefit from the positive developments in the semiconductor industry, she has pegged her target price to a peak valuation of 17 times.
As at 3.31 pm, UMS is trading at $1.29, with a FY2021 price to book ratio of 2.5 and dividend yield of 2.6%.
