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Brokers' take: DBS upgrades UMS to 'buy' on positive outlook for its main client Applied Materials

DBS Group Research has upgraded UMS Holdings to a "buy" on the heels of growth in front-end semiconductor equipment manufacturing and a positive growth outlook for its main client, Applied Materials.

The broker raised its target price for the counter to S$1.21 from S$0.90 previously.

DBS added that: "Riding on the coat-tails of Applied Materials' robust growth outlook, we raise our earnings projections for full-year earnings between 2017-19 by 23-31 per cent."

UMS is a precision engineering group which specialises as an original equipment manufacturer in high precision front-end semiconductor components, performing complex electromechanical assemblies and final testing services.

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"The company also stands out for its strong cash flow (even after paying dividends), generation capabilities and consistent dividends, thus offering both yield and growth," the broker said.

"The positive earnings surprise in the third-quarter (S$13.6 million), recovering order flows, and improved business fundamentals (versus a quarter ago) ease our earlier concerns over imminent market share losses."

Its earnings have been less volatile since it was awarded the Endura contract in 2010 by Applied Materials.

However, the broker cautioned that UMS's heavy reliance on Applied Materials for revenues - an average of 90 per cent - could weigh heavily on UMS's performance in the event that there are disruptions to the relationship or a weakness in Applied Materials' end demand.