CFA Society Singapore
SINGAPORE (May 17): DBS Vickers Securities is maintaining its “buy” call on precision engineering group UMS Holdings, raising its target price on the stock to $1.07 from 73 cents previously after the group recorded its highest quarterly earnings in over a decade.
The research house has raised its FY17F/18F earnings estimates by 67% and 79% respectively as orders from the positive semiconductor equipping trend kicks in, and is in the opinion of a rosy outlook for this segment ahead.
In a Monday report, lead analyst Lee Keng Ling says it is unlikely at this point that UMS will cut dividends from the 6 cents paid over the last few years, given the group’s strong cash flow generation and the fact that it is currently sitting on an all-time high net cash of $47.8 million as at end 1Q17.
In fact, Ling believes an even higher dividend could be paid this year should the group’s earnings execution remains strong in the quarters ahead.
The analyst separately points out the group’s investments as possible growth drivers in the longer term, including Kalf Engineering, a chemical engineering solutions company which UMS acquired a 51% stake in.
Its investment in the aerospace component business via a 10% stake in All Star Fortress Sdn. Bhd. could also bear fruit going forward.
“Following its recent 10% stake in aerospace component manufacturer, ASF and UMS continues to be on the lookout for diversification opportunities (outside of the semiconductor industry) with good long-term growth potential. If successful, these new avenues of growth could help drive further re-rating of the share price,” he observes.
Lastly, Ling has highlighted the group as one that is primed for a takeover as it only has one large shareholder, Andy Luong, who holds a 20% stake.
“With the renewal of the Endura contract providing good earnings visibility, consistently strong cash flows and net cash of $47.8 million (and growing), we now see UMS as an attractive takeover target,” concludes the analyst.
As at 10:18am, shares of UMS are trading 1 cent higher at 98 cents.