UMS HOLDINGS LIMITED (SGX:558)
UMS Holdings Ltd - Industry Downturn Likely Priced In
- UMS HOLDINGS LIMITED (SGX:558)'s 1H19 core net profit of S$8.1m formed 52% of our FY19 forecast; we deem this in line given its past nine years' 1H average of 53%.
- Gross material margin was maintained at 53.1% in 2Q19 (1Q19:53.1%) despite the revenue decline.
- Challenges remain but we are encouraged by stable orders from its key customer.
- Upgrade to HOLD from Reduce.
2Q19 deemed in line with expectations
- We deem 1H19 performance to be in line with the past nine years' trend. UMS's 1H19 core net profit accounted for 52% of our full-year forecast compared to the average of 53% in the past nine years. Despite the 15% y-o-y drop in revenue, gross material margin was maintained at 53.1% in 2Q19 (1Q19: 53.1%).
- UMS was disciplined enough to cut personnel costs by 10% in response to the revenue decline. Other expenses were cut by 20% y-o-y.
- Associate, JEP Holdings (SGX:1J4) also contributed S$1.3m to the group’s earnings versus a S$75,000 loss in 1H18.
- Interim DPS of 0.5 Scts was within our expectation. See UMS's dividend history.
We expect a profitable FY19
- Key challenges in 2H19 include the US-China trade war and the dispute between Korea and Japan. SEMI predicts that global fab equipment spending is expected to decline 18.4% y-o-y in 2019 but could recover by 11.6% y-o-y in 2020.
- We believe UMS will remain profitable in FY19. We also note that UMS is seeing stable orders from its major customer.
Upgrade to HOLD
- Upgrade to HOLD (from Reduce previously) as we think the 2019 downturn in the semicon industry could be priced in and we expect an industry recovery in FY20.
- Our Target Price remains at S$0.55, still based on an unchanged 1.24x FY19F P/BV (ROE: 12.5%, COE: 10.3%).
- Better-than-expected order momentum from its major customer is a key upside risk to our earnings forecast.
- Unexpected pull-back in orders by its major customer is a potential de-rating catalyst.
William TNG CFA
CGS-CIMB Research
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https://research.itradecimb.com/
2019-08-15
SGX Stock
Analyst Report
0.550
SAME
0.550
