UMS Holdings Ltd - CIMB Research 2018-02-28: FY18 Could Be Another Record Year

UMS HOLDINGS LIMITED 558.SI

UMS Holdings Ltd - FY18 Could Be Another Record Year

UMS Holdings' 4Q17/FY17 net profit came in above expectations at 34%/111% of our FY forecast. FY17 performance was driven by higher contribution from better margin component sales. Gross material margin for FY17 was 54.7%.
It declared a DPS of 3Scts in 4Q17, as per historical practice.
UMS remains positive on FY18 outlook as its key customer is looking at double-digit revenue and profit growth in 2018.

Raise Target Price to S$1.31, based on a higher 2.95x P/BV multiple (previously 2.88x).

UMS Holdings' 4Q17/FY17 revenue at 23%/98% of our full-year forecast was in line with our expectations. 4Q17/FY17 net profit at 34%/111% was ahead of our expectations.
The key reason for the better-than-expected performance was the higher contribution from component sales which yield better margins compared to system integration sales. Component sales accounted for 51.5% of the semiconductor segment’s revenue in 4Q17.
One-off items One-off items that aided profitability in 4Q17 were:
1. S$1.8m gain on disposal of machinery;
2. S$1.1m gain from reversal of allowances for inventory obsolescence; and
3. S$0.5m tax credit.
Offsetting these gains was an exchange loss of S$0.8m due to the depreciation of the US$ against the S$ in 4Q17. Depreciation expenses also fell 12% y-o-y to S$1.0m as more assets became fully-depreciated.

UMS generated S$59.6m in operating cash flow before working capital changes for FY17. Cash flow from operations was S$39.2m mainly as S$16.7m cash was tied up in inventories due to the commencement of a new parts consignment programme with its major customer.
Capex of S$10.6m in FY17 was part of the previously announced RM80m capex plan to expand the Penang facility.
It declared a DPS of 3Scts for 4Q17, in line with its historical practice.

On 17 Jan 2018, UMS announced it has purchased a 29.5% stake in SGX-listed JEP Holdings which has a strong track record as a supplier of aerospace components for the world’s leading aircraft manufacturers. If successful in the next few years, JEP could help UMS’s share price re-rate as customer concentration risk will be reduced.

On its FY18 outlook, UMS guided that prospects remain bright. The company notes that industry association, SEMI, has projected that global sales of new semiconductor manufacturing equipment will grow 7.5% in 2018. Its key customer is also forecasting double-digit revenue and profit growth in 2018.
UMS is also ready to take on higher volumes from its major customer as it has enlarged its production capacity in Penang.

We raise FY18F EPS by 10.6% as we factor in stronger revenue growth. FY19F EPS is raised by 5.2% as we reduce our sales decline forecast. Our Target Price rises to S$1.31, now based on 2.95x P/BV (ROE: 20.1%, COE: 6.8%) vs. 2.88x previously.
Key downside risk is unexpected pull-back in orders by its major customer.
Dividend yield of 5.26% remains attractive.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-02-28

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