UMS Holdings Ltd - CGS-CIMB Research 2019-02-27: Taking A Breather


UMS Holdings Ltd - Taking A Breather

  • UMS Holdings' 4Q18/FY18 net profit above expectations at 25%/110% of our FY forecast.
  • FY18 performance was driven by higher contribution from better margin component sales, cost reduction and a one-time gain.
  • Final DPS of 2Scts was higher than our 1Sct forecast. Cancellation of special dividend was in line with our expectations.
  • UMS Holdings expects to remain profitable in FY19 but the industry is headed for a 4% slowdown in sales.
  • Cut Target Price to S$0.62, now based on 1.37x CY19F P/BV (previously 1.72x). Downgrade to REDUCE.

FY18 net profit 10% above forecasts

  • UMS HOLDINGS LIMITED (SGX:558)'s 4Q18/FY18 revenue at 20%/100% of our full-year forecast was in line with our expectations. 4Q18/FY18 net profit at 25%/110% 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 67.5% of the semiconductor segment’s revenue in 4Q18 vs. 51.5% in 4Q17.

Other items that aided 4Q18 results

  • One-off items that aided UMS Holdings' profitability in 4Q18 were:
    1. a S$1.6m gain arising from the acquisition of a 70% stake in Starke Singapore Pte Ltd,
    2. a 27% y-o-y decline in employee expenses as lower bonuses were awarded, and
    3. an 8% y-o-y decline in other expenses as its US operations were consolidated into its Milpitas facility.

Near-term weakness

  • Management guided that the near-term outlook is negative due to the uncertainty in customers’ order flows – attributed partly to the ongoing China-US trade tensions which affected demand from chipmakers.
  • UMS Holdings is optimistic about its diversification strategy which has yielded positive results and will continue to work on pursuing new businesses to diversify its earnings. UMS Holdings expects to remain profitable in FY19.

Industry headed for a downturn in FY19

  • SEMI, the global industry association, expects semiconductor manufacturing equipment sales to fall by 4.0% in FY19. This could be followed by a 20.7% increase in FY20 to reach US$71.9bn, an all-time high.

Downgrade to REDUCE; 4.8% yield offers support

  • We cut our FY19-20F core EPS as the slowdown gathers pace. Our ROE-g/COE-g derived P/BV multiple falls to 1.37x (1.72x previously). Target Price based on FY19 BVPS falls to S$0.62.
  • Downgrade to REDUCE from Hold previously.
  • Downside risk is order pullback by its customer.
  • Upside risk is stronger-than-expected orders from its customer, M&As and new customers (diversification efforts).

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-27
SGX Stock Analyst Report REDUCE DOWNGRADE HOLD 0.62 DOWN 0.750