Proxy to Global Semicon Equipments Upcycle; BUY UMS

• We see UMS as a proxy to the global semiconductor equipment spending upswing through its key customer Applied Materials (AMAT). AMAT is upbeat about its FY21E prospects, as chipmakers continue to forge ahead with their technology roadmaps.
• Maintain BUY on UMS with ROE-g/COE-g target price of S$1.41 (2.4x FY21E P/B).

AI: a “trillion-dollar Inflection”

• UMS Holdings (SGX:558) has been supplying to AMAT since 1999. Around half of its semiconductor revenue is composed of the wafer transfer modules for Endura, the most widely used deposition platform globally, while the other half are components for AMAT’s other semiconductor platforms. As such, we see UMS as a good proxy to the global fab equipment spending cycle.
• AMAT is optimistic of its FY21 prospects on the back of sustained logic-foundry spending and the recovery of memory spending. AMAT views AI as a “trillion-dollar” inflection that it is well positioned to capitalise, given its core expertise in materials engineering.

Upswing Continues in FY21

• We expect UMS's FY20-21 EPS growth of 46%/25% respectively, on the back of the upcycle in semiconductor equipment spending.
• UMS is conserving cash to capture near-term growth opportunities – which may require capacity expansion if such opportunities materialise. This could be in the form of a new customer, which we believe provides growth and diversification in the long-run, if it pans out.

Risks

• Key risks to our forecasts include:
  1. unexpectedly strong inventory adjustment cycle, which may temper the pace of global semiconductor equipment spending;
  2. our own overestimation of the duration and quantum of the current earnings upcycle; and
  3. continued/intensifying US-China technology tensions that may incrementally impact US semiconductor equipment exports to Chinese chipmakers.

Source: Maybank Kim Eng Research - 21 Nov 2020