Stronger 2Q15, reiterate Add
- UMS reported a stronger 2Q15, with core EPS increasing 12.4% yoy and 26.9% qoq.
- 1H15 core net profit was broadly in line with our forecast at 54%.
- Given the stable outlook for semiconductor equipment spending guided by industry forecasters and management, we keep our numbers unchanged and reiterate our Add rating and target price of S$0.63.
- This is based on 1.38x CY15 P/BV.
- We continue to like the highly-sustainable base-case DPS of 5 Scts, translating into an attractive FY15-17 dividend yield of 9.8%.
- Potential catalysts are earnings momentum, new customers and strong cash flow.
- A key risk is a further sell down by its major shareholder.
Stronger 2QFY15
- UMS observed that business picked up earlier than expected as 2QFY15 revenue grew 8.2% yoy and 13% qoq to S$31m.
- This was driven by better component sales from the US (+44% yoy) and slight growth in Singapore (+1% yoy).
- With manufacturing activities concentrated in Penang, the weak ringgit will help lower operating costs.
- The gross material margin stayed stable at 57%.
2H15 to grow yoy
- The Semiconductor Equipment and Materials International (SEMI) trade association forecasts semiconductor equipment spending to grow 11% in 2015 and 5% in 2016 while Gartner expects the same to be flat in 2015.
- CEO, Andy Luong guides for a possibly stronger 2H15 versus 2H14.
Dividend tradition continues
- UMS declared an interim dividend of 1 Sct/share in 2Q15.
- In 1Q15, the company also declared a 1 Sct DPS.
- Its balance sheet remains strong, with a net cash position of S$39.6m (no debt) and limited capex.
- Operating cash flow in 2Q15 was S$13m while free cash flow was S$12.6m.
- UMS operates in a cyclical industry, relies on one single customer, Applied Materials and has been unable to grow its business beyond this single customer.
- Despite these, the company has prudently returned excess free cash flow to shareholders rather than undertake M&A for the sake of short-term growth.
Analyst: William TNG, CFA; NGOH Yi Sin
Source: http://research.itradecimb.com/
