UMS Holdings Ltd - CGS-CIMB Research 2018-08-14: Expects Softer Revenue In 2H

UMS HOLDINGS LIMITED SGX:558

UMS Holdings Ltd - Expects Softer Revenue In 2H

UMS's 2Q18 net profit formed 30% of our full-year forecast. 1H18 was 53% of our FY18F, in line with the historical average of 52% for FY10-17.
2Q18 revenue fell 18% y-o-y due to the decline in orders from its major customer.
UMS declared 2Q DPS of 1 Sct. Net cash position of S$11.6m as at end-2Q18.
Management guides for softer revenue in 2H18 but still expects to remain profitable for the full year.

Target Price maintained at S$1.21, based on an unchanged P/BV multiple of 2.82x.

UMS's 2Q18 net profit of S$14.5m formed 30% of our full-year forecast. 1H18 net profit of S$25.9m formed 53% of our full-year forecast, in line with the historical average of 52% (FY10-17).
Gross material margin hit a record 64% in 2Q18 (2Q17: 51%; 1Q18: 57%) due to a higher proportion of semiconductor component sales which command better margins.
1 Sct DPS was declared and the balance sheet remained in a net cash position of S$11.6m as at end-2Q18.

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In the mid- to long-term, UMS believes that the prospects for the industry remain bright. SEMI, the global industry association representing the electronics manufacturing supply chain, has projected a 10.8% increase in sales of new semiconductor manufacturing equipment globally to US$62.7bn in 2018, exceeding the historic high of US$56.6bn in 2017.
SEMI expects another record-breaking year for the semiconductor equipment market in 2019, with 7.7% growth to US$67.6bn.

UMS noted that global billings for semiconductor equipment remain robust although the growth rate has softened. Leading chipmakers in Asia have also cut their sales forecasts to single-digit growth rates for the second half of 2018 due to concerns over rising trade tensions between the US and China as well as slower demand.
Although UMS guided for softer revenue in 2H18, the group expects to remain profitable for the full year.

We cut FY18F revenue by 9% to factor in the softer revenue guidance (recall that we had preemptively cut our revenue forecasts in our 1Q18 results note).
Our FY18-20F earnings remain unchanged, reflecting the better gross material margins. At an unchanged 2.82x P/BV multiple (ROE: 20.2%, COE: 7.8%), we maintain our ADD call and Target Price of S$1.21.
Downside risk is order pullback by its customer.
Potential catalysts are stronger-than- expected orders from customers.
Dividend yields are attractive at 7.6% over FY18-20F.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-14

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