Brokers’ take: CGS-CIMB raises UMS target on higher revenue projections 

WITH UMS Holdings : 558 0% seeing strong order forecasts from its key customer, CGS-CIMB has raised its FY2022-2024 revenue forecasts for the semiconductor company by 6.9-14.2 per cent to result in a higher target price of S$2.03, from S$1.63 previously.

The research house continues to rate UMS at “add” and believes the group will be able to secure new customers for its 300,000 sq plant due to be ready by the year-end.

“We think UMS’s chances of onboarding new customers are high as Malaysia saw approved investments for its manufacturing sector grow 42.5 per cent to RM130 billion in 2021 from RM91.3 billion in 2020,” said analyst William Tng in a report on Friday (Aug 19), citing figures from the Malaysian Investment Development Authority’s 2021 investment performance report.

According to Tng, the new price target – now valued at 2 standard deviation points above the stock’s January 2017 to August 2022 price-to-earnings multiple – is justified as CGS-CIMB now expects earnings per share (EPS) compound annual growth rate (CAGR) for FY2021-FY2024 to come in at 23.7 per cent.

The previous S$1.63 target price was based on the group’s forward peak price-to-earnings multiple of 14.45 times achieved in the upcycle of FY2016-2018, as opposed to the revised multiple of 15 times FY2023 EPS estimates.

CGS-CIMB’s EPS forecasts for UMS would see further upside if the group’s Malaysian subsidiary achieves a favourable tax resolution, added Tng.

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To recap, UMS is in the midst of discussions with the Malaysian tax authorities to reinstate its former pioneer tax status for its subsidiary Ultimate Manufacturing Solutions, which enables the company to be 100 per cent exempt from taxes for 10 years from Aug 11, 2017.

The tax incentive was disallowed as the group was not able to meet the stipulated percentage of local employee criteria. UMS has engaged a tax consultant to advise in discussions with the authorities, and hopes to achieve a favourable resolution before the end of 2022.

CGS-CIMB projects a 14-21.3 per cent increase in UMS’s FY2022 EPS should the tax issue be favourably resolved.

SAC Research, too, is expecting a stronger H2 for UMS on its key customers’ upbeat order forecast, and has therefore raised its FY2022 revenue forecast by a marginal 1 per cent to S$371.6 million.

On expectations of higher output, the research house has lifted its price target on UMS to S$1.75 from S$1.55 previously while reiterating its “add” call on the stock.

“Going forward, the US$52 billion commitment under the CHIPS Act will support spending from chipmakers to install capacity in the US. This will lend support to demand for front-end semicon equipment,” commented its analyst Lim Shu Rong in a report on Monday.

Lim believes the group is currently insulated from fluctuations in prices of input materials thanks to inventory stockpiling. She also feels the group’s manpower costs are unlikely to increase further, now that the shortage of workers has eased.

Shares of UMS were trading S$0.06 or 4.8 per cent higher at S$1.32 as at 3.12 on Monday.