Broker's take: KGI initiates coverage on UMS with 'underperform' call
KGI Securities has initiated coverage on contract manufacturer UMS Holdings with an "underperform" recommendation and a target price of 67 Singapore cents.
As at 10.37am on Monday, the mainboard-listed counter was trading at 77.5 Singapore cents, down 4.5 cents or 5.5 per cent.
Amid the Covid-19 pandemic, semiconductor capital equipment spending may hit a roadblock this year, with various downgrades across market research firms, KGI noted.
"As competition in the deposition space heats up, we think UMS could face stronger headwinds than what the market currently anticipates," wrote KGI analyst Kenny Tan in a research note on Monday.
In addition, he is of the view that the current damage to the airline industry will have an "outsized impact" on small and medium enterprises suppliers, such as UMS's associates JEP Holdings and All Star Fortress.
JEP is a provider of precision machining and engineering services, with a primary focus on the aerospace industry, while All Star Fortress is a Malaysian aerospace metallic component manufacturer.
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Separately, KGI believes that trade tensions between the US and China, the world's two largest economies, have resurfaced, with recent export controls imposed on Beijing by Washington.
"Trade war undercurrents are still present, forming another dormant, yet highly impactful risk factor... In the event the trade war picks up again, we think UMS's key business will be moderately impacted," said Mr Tan.
KGI has applied an 11 times price-to-earnings peg to its base case scenario for the firm's forecast earnings this year to derive at its target price of 67 Singapore cents. This represents about an 18 per cent downside from the counter's close of 82 Singapore cents last Thursday.
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