UMS Holdings Ltd - DBS Research 2019-05-14: Mandatory Offer For JEP Holdings At S$0.15 Per Share

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings Ltd - Mandatory Offer For JEP Holdings At S$0.15 Per Share

Mandatory offer for associate JEP HOLDINGS LTD. (SGX:1J4) triggered after acquiring 10.9% stake from ELLIPSIZ LTD (SGX:BIX); total stake now stands at 38.8%
Acquisition will help UMS HOLDINGS LIMITED (SGX:558) to diversify from cyclical semiconductor industry
JEP provides precision machining and engineering services for the aerospace industry
Maintain FULLY VALUED call on UMS as near term outlook for semiconductor remains weak

UMS HOLDINGS LIMITED (SGX:558) will be making a mandatory conditional cash offer to acquire all the remaining shares of its associated company - SGX Catalist-listed JEP HOLDINGS LTD. (SGX:1J4), other than those already owned. The offer price of S$0.150 per Sale Share represents a discount of approximately 3.8% over the last market transacted price of S$0.156 per Share as at 10 May 2019. UMS will also make an offer to acquire all outstanding warrants issued by JEP, at the offer price of S$0.074 per warrant.
This offer was triggered after UMS acquired 43.8m JEP shares or 10.9% stake from SGX-listed Ellipsiz via a married deal. With the acquisition, UMS’ shareholding in JEP increased from 27.9% to 38.8%. UMS will pay Ellipsiz a total of approximately S$6.58m in cash or S$0.150 per Sale Share. This works out to almost 30x FY18 PE.
See UMS announcements, JEP announcements, Ellipsiz announcements.

The proposed acquisition of JEP is in line with UMS’ overall diversification strategy to tap on new growth sectors beyond the semiconductor industry. UMS acquired c.28% stake in JEP back in January 2018 for S$28.2m or c.S$0.28 per share (after adjustment for 4:1 share consolidation).
UMS has made several acquisitions in the past few years, to diversify from the cyclical semiconductor business. In 2018, UMS acquired a 70% stake in Starke Singapore, a non-ferrous metal alloys specialist. In 2017, UMS acquired a 51% stake in water and chemical engineering solutions company, Kalf Engineering, and in 2016, the group also diversified into aerospace components via a 10% stake in All Star Fortress Sdn Bhd.

JEP is a leading solutions provider of precision machining and engineering services, with a primary focus on the aerospace industry. It has over 30 years of operating history. In FY18, JEP reported net earnings of S$2.2m, which more than doubled from FY17, on revenue of S$85.9m. JEP's key aerospace clients include major aircraft manufacturing giants in the US, the world's largest aerospace market. UMS currently has no intention to delist JEP.

We have a FULLY VALUED call on UMS with Target Price of S$0.55 pegged to 8x (vs larger peers’ 9x) FY19F PE.
Near term outlook for the semiconductor industry remains weak. Key customer Applied Materials (AMAT) is also guiding for a weaker outlook.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2019-05-14

SGX Stock Analyst Report FULLY VALUED MAINTAIN FULLY VALUED 0.550 SAME 0.550