CFA Society Singapore
SINGAPORE (Aug 16): UMS Holdings announced that its 2Q18 earning have increased by 26% to $14.5 million, compared to $11.5 million in 2Q17.
This brings 1H18 earnings to $25.9 million, 14% higher than $22.7 million in 1H17.
However, revenue for the quarter saw an 18% drop to $35.2 million from $$42.7 million a year ago. This was mainly due to a 17% decline in sales from the group’s semiconductor business and the absence of revenue contribution from its Others segment.
Changes in inventories increased more than six fold to $6.20 million from $0.95 million last year.
The group declared an interim dividend of 1.0 cents per share, which will be payable on Oct 26.
Following the results announcement CGS-CIMB Securities is maintaining its “add” call on UMS Holdings with a target price of $1.21.
The group’s 2Q earnings was in line with and formed 30% of the research house’s full-year forecast.
In the mid- to long-term, the group believes that the prospects for the industry remain bright.
SEMI, the global industry association representing the electronics manufacturing supply chain, has projected a 10.8% increase in sales of new semiconductor manufacturing equipment globally to US$62.7 billion in 2018 ($86.5 billion), exceeding the historic high of US$56.6 billion in 2017.
Despite softened growth rate, the group noted that global billings for semiconductor equipment remain robust.
In a Tuesday report, analyst William Tng says, “Leading chipmakers in Asia have also cut their sales forecasts to single-digit growth rates for the second half of 2018 due to concerns over rising trade tensions between the US and China as well as slower demand.”
Although the group has guided for softer revenue in 2H18, it expects to remain profitable for the full year.
Similarly, DBS Group Research is reiterating its “buy” call on UMS Holdings with a lowered target price of $1.01.
For more than a decade, the group has partnered closely with Applied Materials. And despite its exposure to the cyclical industry, the group’s earnings has been less volatile since it secured the Endura contract in 2010.
In a Wednesday report, analyst Carmen Tay says, “In 2018, growth will mainly be supported by a ramp-up in its higher-margin Components business and cost benefits arising from its shift to Penang.”
In addition, the analyst believes that the group may sacrifice some of its ASPs and margins over the near-term for volume growth to capitalise on opportunities arising from trade shifts away from China into ASEAN.
Meanwhile, over the medium term, rosy demand forecasts for chips in attractive end-sectors such as automotive and IoT also bode well semiconductor equipment companies’ prospects.
On Aug 13, the group acquired a 70% stake in Starke Singapore.
“We estimate that the acquisition of Starke would provide the group with a good opportunity to secure cost savings, improve gross margins and enhance business and operational synergies through upstream integration of the supply chain of raw materials, and contribute about 1.5% of FY18F earnings,” says Tay.
As at 1.10pm, shares in UMS Holdings are trading 1 cent lower at 78 cents or 1.8 times FY18 book with a dividend yield of 7.6%.