Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

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<div><em><strong>These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<p>RESULTS UPDATE&nbsp;</p>
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<h2>UMS Holdings</h2>
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<h3>Strong momentum</h3>
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<p>• <strong>UMS reported 2Q20 results</strong> with sales up 34.5% YoY (1H20: 28.4%). While gross margins were weaker, lower employee expenses led to another quarter with above average profit margin of 28.7% (1H20: 29.7%).</p>
<p>• <strong>Key customer with bullish announcement.</strong> Applied Materials reported their own 3Q FY20 results, with improved revenue guidance into the next quarter. UMS management echoed the sentiment for investors to expect 2H20 to be stronger than 1H20.</p>
<p>• We adjust revenue and profitability forecasts upwards, in line with the improved outlook commentary from both UMS and the key customer. We roll forward valuations to be based on FY21F. Our new TP is S$1.17, an 8.3% upside. <strong>Maintain NEUTRAL.</strong></p>
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<p><strong>UMS reported 2Q20 results,</strong> with 2Q20 sales of S$40.3mn, up 34.5% YoY (1H20: S$75.2mn, +28.4% YoY). Gross margins reached a low of 50.8% (1H20: 51.9%), as product mix is skewed towards Integrated Systems sales, which contribute lower margins than Component Sales. However, lower Employee and Other expenses led to strong profitability margins. Contributions from JEP Holdings has also offset weakness in Kalf Engineering.</p>
<p>Key customer Applied Materials (AMAT) reported 3Q FY20 results roughly half a day after UMS, beating analyst estimates. AMAT has also returned to the practice of giving quarterly guidance, and gave 4Q FY20 sales forecast of USD 4.6bn, +4.6% QoQ and +29.1% YoY. 4Q FY20 Semiconductor Systems forecast is at USD 3.025bn, +3.7% QoQ and +33.1% YoY, while Applied Global Services forecast is at USD 1.07bn, +3.5% QoQ and +9.5% YoY.</p>
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<p><strong>A key topic on AMAT’s earnings call</strong> was the disclosure of AMAT’s deposition sales in 2019 – around US$ 5.2 bn, and roughly an 8% market share gain, according to VLSI. Our channel checks suggest that AMAT’s market share is around 44% of the deposition market in 2019, and with possibility of further gains given the company’s bullishness. It is likely that AMAT will hold 50%+ market share after the Kokusai Electric acquisition is complete.</p>
<p>UMS management echoed the sentiment for strength in the semiconductor division, with expectations for 2H20 results to be stronger than 1H20. Utilisation rates are 60-80% for both Integrated Systems and Component Sales division, and there are considerations for capacity expansion in the latter half of the year. However, mgmt. expects weakness in subsidiary and associate businesses, given COVID induced industry headwinds, and the impact will appear on the books soon, in 2H20.</p>
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These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

RESULTS UPDATE&nbsp;




UMS Holdings



Strong momentum




• UMS reported 2Q20 results with sales up 34.5% YoY (1H20: 28.4%). While gross margins were weaker, lower employee expenses led to another quarter with above average profit margin of 28.7% (1H20: 29.7%).
• Key customer with bullish announcement. Applied Materials reported their own 3Q FY20 results, with improved revenue guidance into the next quarter. UMS management echoed the sentiment for investors to expect 2H20 to be stronger than 1H20.
• We adjust revenue and profitability forecasts upwards, in line with the improved outlook commentary from both UMS and the key customer. We roll forward valuations to be based on FY21F. Our new TP is S$1.17, an 8.3% upside. Maintain NEUTRAL.




UMS reported 2Q20 results, with 2Q20 sales of S$40.3mn, up 34.5% YoY (1H20: S$75.2mn, +28.4% YoY). Gross margins reached a low of 50.8% (1H20: 51.9%), as product mix is skewed towards Integrated Systems sales, which contribute lower margins than Component Sales. However, lower Employee and Other expenses led to strong profitability margins. Contributions from JEP Holdings has also offset weakness in Kalf Engineering.
Key customer Applied Materials (AMAT) reported 3Q FY20 results roughly half a day after UMS, beating analyst estimates. AMAT has also returned to the practice of giving quarterly guidance, and gave 4Q FY20 sales forecast of USD 4.6bn, +4.6% QoQ and +29.1% YoY. 4Q FY20 Semiconductor Systems forecast is at USD 3.025bn, +3.7% QoQ and +33.1% YoY, while Applied Global Services forecast is at USD 1.07bn, +3.5% QoQ and +9.5% YoY.



A key topic on AMAT’s earnings call was the disclosure of AMAT’s deposition sales in 2019 – around US$ 5.2 bn, and roughly an 8% market share gain, according to VLSI. Our channel checks suggest that AMAT’s market share is around 44% of the deposition market in 2019, and with possibility of further gains given the company’s bullishness. It is likely that AMAT will hold 50%+ market share after the Kokusai Electric acquisition is complete.
UMS management echoed the sentiment for strength in the semiconductor division, with expectations for 2H20 results to be stronger than 1H20. Utilisation rates are 60-80% for both Integrated Systems and Component Sales division, and there are considerations for capacity expansion in the latter half of the year. However, mgmt. expects weakness in subsidiary and associate businesses, given COVID induced industry headwinds, and the impact will appear on the books soon, in 2H20.




















Non-SGX Report: UMS Holdings: Strong Momentum