UMS Holdings Ltd - CGS-CIMB Research 2019-05-15: 2H19F Visibility Still Limited


UMS Holdings Ltd - 2H19F Visibility Still Limited

  • UMS HOLDINGS LIMITED (SGX:558)'s 1Q19 core net profit was S$7m, at 21% of our FY19 forecast; we deem this as below expectation given its past nine years' 1Q average of 24%.
  • Gross material margin fell to 53% vs. 57% in 1Q18 due to less favourable product mix.
  • Limited 2H19F visibility; maintain REDUCE.

1Q19 deemed below expectations

  • We deem UMS HOLDINGS LIMITED (SGX:558)'s 1Q19 performance as below expectations compared with the past nine years' trend.
  • 1Q19 sales accounted for 24% of our FY19 forecast vs. 26% average in the past nine years while core net profit was 21% of our FY19F vs. 24% average in the past nine years. The 24% y-o-y revenue decline was due to the slowdown in the semiconductor industry while the erosion in gross material margin was due to a less favourable product mix i.e. increase in lower-margin equipment sales and bigger sales contribution from its lower-margin distribution business.
  • Given the industry downturn, UMS was quick to reduce operating expenses. Associate contribution via its 27.9% stake in JEP HOLDINGS LTD. (SGX:1J4) surged 2,763% y-o-y to S$0.46m.

FY19F likely a down year

  • We expect FY19F to be a down year for the semiconductor industry. This view is supported by the 1Q 2019 World Fab Forecast report issued by the Industry Research & Statistics Group at SEMI which predicts that global fab equipment spending is expected to decline 14% y-o-y 2019F but will stage a strong recovery of 27% y-o-y to set a new record in 2020F. The key risk is the negative impact of the trade tensions between USA and China.


  • We see two positives for UMS:
    • UMS is now in the midst of a general offer (GO) for JEP shares. Given that JEP is already profitable, the earnings contribution from JEP would increase, depending on how large a stake UMS ends up with when the GO closes.
    • Trade tariffs imposed on Chinese goods could lead to a higher allocation of orders by UMS's key customer away from its existing suppliers producing in China.

Maintain Reduce, with a lower TP

  • We cut our forecasts to reflect the latest gross material margin. Our Target Price falls to S$0.55, now based on 1.24x FY19F P/BV (ROE: 12.5%, COE: 10.3%) vs. 1.37x previously.
  • Better-than-expected order momentum from its major customer is a key upside risk to our REDUCE call.
  • Unexpected pull-back in orders by its major customer is a potential de-rating atalyst.

William TNG CFA CGS-CIMB Research | 2019-05-15
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 0.55 DOWN 0.620