CFA Society Singapore
SINGAPORE (Feb 28): CGS-CIMB is downgrading its call on UMS Holdings to “reduce” from “hold” with a reduced target price of 62 cents from 75 cents previously.
In a Wednesday report, analyst William Tng says, “We cut our FY19-20F core EPS as the slowdown gathers pace.”
“Downside risk is order pullback by its customer. Upside risk is stronger-than-expected orders from its customer, M&As and new customers (diversification efforts),” he adds.
The group on Feb 26 announced that its 4Q18 earnings have dropped by 41% y-o-y to $9.3 million, while revenue declined by 33% to $25.9 million.
The drop in revenue was mainly due to a 36% y-o-y decline in the semiconductor segment, but partially offset by a 63% rise in sales surge from its others segment comprising mainly of revenue from subsidiaries Starke Singapore and Kalfe Engineering.
Several one-off items aided the group’s profitability in 4Q18, including a $1.6 million gain from the acquisition on a 70% stake in Starke Singapore, a 27% y-o-y decline in employee expenses as lower bonuses were awarded, and an 8% y-o-y decline in other expenses as its US operations were consolidated into its Milpitas facility.
The group’s management has guided that near-term outlook seems negative due to the uncertainty in customers’ order flows, due partly to the ongoing China-US trade tensions, which affected demands from chipmakers.
However, the group remains optimistic about its diversification strategy, which has shown positive results. It also expects to remain profitable in FY19.
Overall, the semiconductor industry is expected to see manufacturing equipment sales fall by 4.0% in FY19, but increase in FY20 by 20.7%, according to SEMI, the global industry association.
As at 4.00pm, shares in UMS Holdings are trading 4.05% lower at 71 cents, or 1.6 times FY19 book with a dividend yield of 4.8%.