UMS Holdings Ltd - CIMB Research 2016-05-10: Hold off until 2H16 recovery

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UMS HOLDINGS LIMITED 558.SI 

UMS Holdings Ltd - Hold off until 2H16 recovery

• Excluding FX loss, 1Q16 core net profit was in line at 23% of our FY16 forecast.
• 1Q16 revenue dipped 26% yoy due to weakness in the semiconductor segment.
• We expect stronger 2H16 revenue, driven by recovery of fab equipment spending worldwide.
• Our FY16-18 EPS estimates are unchanged but we downgrade to Hold with target price of S$0.63 (based on 1.38x FY16 P/BV).
• UMS offers FY16-18 dividend yield of 7.9% and has zero debt. 

1Q16 revenue of S$20.3m was 26% lower than in 1Q15

• UMS reported 1Q16 revenue of S$20.3m, which was 26% lower than the S$27.5m in 1Q15. 
• The key culprit behind this was the weaker semiconductor segment revenue (- 28% yoy), which offsets the 539% yoy rise in revenue contribution from oil and gas industry products (one-off customer order).

1Q16 core net profit of S$5m in line at 23% of our FY16 forecast

• UMS’s gross margin edged up 3% pts from 57% in 1Q15 to 60% in 1Q16 as a result of higher average US$. 
• We also saw a FX loss of S$1.9m in 1Q16 (vs. S$0.8m FX gain in 1Q15) due to the sudden depreciation of the US$, especially in the month of Mar-16. 
• Excluding the FX impact, core net profit fell 22% in 1Q16 to S$5m, which was in line with expectations at 23% of our full-year estimate.

Higher global fab equipment spending to stimulate demand

• According to the SEMI World Fab Forecast, it expects front-end fab equipment spending to accelerate in 2H16 and increase by 13% yoy to US$42.1bn in 2017. 
• We project that sales will pick up in 2H16 and hence, deem 1Q16 sales in line at 20% our full-year forecast

EPS forecasts unchanged; downgrade from Add to hold

• As we deem 1Q16 results in line, we retain our FY16-18 EPS estimates and target price of S$0.63, pegged to 1.38x FY16 P/BV. However, we downgrade the stock from Add to Hold as we see limited upside potential in the near term. 
• UMS continued to generate strong free cash flow of S$5m in 1Q16 (1Q15: S$6.4m) and declared an interim DPS of 1.0 Sct, in line with its quarterly history. 
• It also offers 7.9% dividend yield in FY16-18, based on our estimates.

William TNG CFA CIMB Securities | NGOH Yi Sin CIMB Securities | http://research.itradecimb.com/ 2016-05-10

CIMB Securities SGX Stock Analyst Report HOLD Downgrade ADD 0.63 Same 0.63