Brokers' take: UOBKH initiates UMS Holdings at 'buy', S$1.65 target

UOB Kay Hian (UOBKH) has initiated coverage on UMS Holdings at "buy" with a target price of S$1.65, saying UMS will benefit from the strong uptrend in the semiconductor industry.

In a report issued on Tuesday, analyst Clement Ho said: "The semiconductor industry is riding on a strong uptrend, with significant demand for semiconductor chips arising from 5G-related spending and the growth of data."

Mr Ho highlighted that UMS, which provides modules and precision components for machines used to manufacture semiconductor chips, will be a beneficiary of the phenomena.

He noted that UMS's key client Applied Materials is seeing strong order demand for its semiconductor segment. About 93 per cent of UMS's 2020 revenue came from Applied Materials, the semiconductor industry's largest maker of machinery used to manufacture chips.

The analyst added that UMS has a close working relationship with Applied Materials that started in 1999.

Mr Ho expects strong growth in revenue and core net profit for UMS for FY2021 of 25 per cent and 36 per cent respectively. He likes UMS's large cash pile, track record of generating positive free cash flow and potential to raise dividend per share from 2023 onwards.

He deems the forward price-earnings of UMS of 10.9 times attractive, given the cyclical upturn in the semiconductor industry.

As at 9.56am on Tuesday, shares of UMS were up by S$0.02 or 1.7 per cent at S$1.22.