ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

UMS CONTINUES ROBUST MOMENTUM IN 1Q2014 WITH 63% NET PROFIT INCREASE AND 63% JUMP IN FREE CASH FLOW GENERATED; PROPOSED INTERIM DIVIDEND OF S$0.01 PER SHARE

http://infopub.sgx.com/FileOpen/01_UMS_S...eID=296094 [Results]

http://infopub.sgx.com/FileOpen/02_UMS_P...eID=296095 [Press Release]

http://infopub.sgx.com/FileOpen/03_UMSH_...eID=296098 [Bonus Shares Date]

Excellent results ! Significantly above my expectations but it is not safe to simply annualize the results since previous years has been fairly lumpy.

1) Revenue up 23% with gross margins stable at 53% highlighting the strength of the management in optimizing its industrial process and the value it provides to AMAT. UMS has historically maintained its margins at this level.

2) NPAT of $8.5 million and FCF of $10.3 million can easily sustain the 1.0 cent dividend (post bonus) amounting to $4.3 million. This means it generated an EPS of 2.49 cents.

3) Sharp rise in capex to $2.6 million. In line with lower depreciation cost implying some machines lifespan may have matured. Easily financed by OCF. Management did guide capex of $4-5 million p.a.

4) Truly a cash generating operation. In 1Q 14, UMS generated OCF of $13.0 million and $10.3 million FCF. This boosted its net cash position from $29 million to a record high $39 million or 11 cents per share.

5) CEM division continues to shrink and reported negligible revenue for the quarter. Doubt this will change unless M&A is conducted to scale its products. Management mentioned they won't pursue businesses with low margin.

6) Lastly, the bonus shares will be entitled to the 1Q 2014 dividend. This means UMS has effectively raised the dividend by 25%. I expect them to maintain the 5.0 cent payout ($21.5 million) but considering the potential for a strong year and their huge cash hoard, a 6.0 cent payout ($26.0 million) could be feasible.

(Vested)

1Q2014 Results:

Revenue (SGD million）:
1Q2013 = 27.845
2Q2013 = 32.821
3Q2013 = 25.357
4Q2013 = 34.445
1Q2014 = 34.309

NPAT (SGD million):
1Q2013 = 5.256
2Q2013 = 7.837
3Q2013 = 4,809
4Q2013 = 10.978
1Q2014 = 8.558

Gross Profit Margin :
1Q2013 = 49%
2Q2013 = 50%
3Q2013 = 53%
4Q2013 = 63%
1Q2014 = 53%

Net Profit Margin :
1Q2013 = 19%
2Q2013 = 24%
3Q2013 = 19%
4Q2013 = 32%
1Q2014 = 25%

EBITDA Margin:
1Q2013 = 28%
2Q2013 = 31%
3Q2013 = 31%
4Q2013 = 42%
1Q2014 = 34%

FCF Generated (SGD million):
1Q2013 = 6.4
2Q2013 = 7.3
3Q2013 = 6.3
4Q2013 = 5.8
1Q2014 = 10.3

Cash & Cash Equivalent (SGD million)
1Q2013 = 28.448 (debt = 2.035)
2Q2013 = 27.406
3Q2013 = 30.134
4Q2013 = 29.236
1Q2014 = 39.263

Comments:
1) Not the best among the latest 5 quarterly results – nevertheless, it was an excellent set of results - 4Q2013 was an exceptional quarter which is hard to beat.
2) 1Q2014 could be considered the best 1Q result in the last 5 years
3) SGD 10.3 million of FCF generated –this was above my expectation.
4) “Following the good set of financial performance registered in 1Q2014, the Group expects its core front-end semiconductor equipment business to continue on a robust trajectory into the second quarter of 2014”
– It sounds like 2Q could be just as good as 1Q – may be another 10 million of FCF to be generated (ha-ha !) – if this turn out to be the case then it would not be that bad if 2H2014 turn out to be weak.
5) “Nonetheless, despite the positive industry level forecasts, the Group remains alert to any possible shifts in demand pattern, due to the unique nature of the industry”
– “temporary deceleration” in demand could be coming – may be or may be not – should get a better picture of the situation on 15 May when AMAT announces its results.

(vested)

Dividends, bonus shares, capital gains... Si bei song ah!!

If one's portfolio includes some tech stocks, I believe UMS is one of the best in the Singapore market. Free cash flow from operations can support dividend payout comfortably. And more impt, this dividend yield is still attractive....

Surprised to see such a big movement today. It is currently trading at multi-year highs of 91.5 cents. Assuming the dividend is raised to a pre-bonus payout of 7 cents per share, it implies a yield of 7.6%. It must be noted that the industry is seasonal so it remains to be seen whether 2H 14 results will be as strong. Ultimately, the Group has substantial sums of cash and generates consistent FCF which can sustain a dividend payout barring a sharp decline in foundries spending.

(Vested)

First Quarter Semiconductor Trends and Update

May 6, 2014

By Dan Tracy, senior director, Industry Research & Statistics, SEMI

Given the slow economic growth in the U.S. during the first quarter, coupled with challenging geo-political developments around the world, uncertainty once again permeates the industry outlook for the year. With that said, industry trends show the first quarter of this year being generally stronger than the first quarter of one year ago. This week, the Semiconductor Industry Association (SIA) announced that semiconductor sales reached $78.6 billion in the first quarter, the highest-ever first quarter sales.

Industry data collected by SEMI and its data partners also demonstrate a positive first quarter compared to one year ago. Combined equipment billings reported by SEMI and the Semiconductor Equipment Association of Japan (SEAJ), as reported in our respective book-to-bill programs, have first quarter 2014 billings at about $7.9 billion, over 30 percent higher than one year ago. Leadframe unit shipment growth, reported to SEMI, is up 14 percent compared to the same period one year ago.....................................

http://www.semi.org/node/49781?id=sgurow0514

(vested)

TSMC extends 28nm production lead time to 16 weeks

Cage Chao, Taipei; Steve Shen, DIGITIMES [Friday 9 May 2014]

The lead time for production of 28nm chips at Taiwan Semiconductor Manufacturing Company (TSMC) has extended from 10 to 16 weeks, pushing clients to look for alternative suppliers, according to industry sources.

TSMC has informed its clients that it may not be able to fulfill 28nm orders placed in May until September or October due to tight production schedules at its 28nm lines, the sources noted.

Some IC design houses which have failed to secure sufficient 28nm production capacity at TSMC, have begun to seek alternative production at Globalfoundries, United Microelectronics Corporation (UMC) and Semiconductor Manufacturing International Corporation (SMIC), indicated the sources.

TSMC's major clients for 28nm and below processes include Qualcomm, Broadcom, Apple, Samsung Electronics, MediaTek, STMicroelectronics, Infineon Technologies, Renesas Electronics and Texas Instruments (TI), the sources indicated.

Given the advantages that TSMC boasts in terms of manufacturing process and yield rates for 28nm chip production, these major clients are likely to choose to stay in line for the 28nm capacity at TSMC, the sources commented.

http://www.digitimes.com/news/a20140509PD207.html

_________________________________________________________________________________________________________________________________________________

TSMC reports revenues for April

MOPS, May 9; Rodney Chan, DIGITIMES [Friday 9 May 2014]

TSMC has reported consolidated revenues of NT$61.887 billion (US$2.06 billion) for April 2014, representing a 23.88% increase on month and 23.6% increase on year.

The company has totaled NT$210.103 billion in year-to-date revenues, up 14.92% compared with the same time last year.

For the year of 2013, TSMC totaled NT$597.024 billion in consolidated revenues, up 17.82% sequentially and up 10.63% on year.

The company's stock price changed 0.41% and finished at NT$120.00 in trading on the Taiwan Stock Exchange (TSE) on May 9, 2014

http://www.digitimes.com/news/a20140509PM200.html

(vested)

Cash (Net of Debt , SGD ‘000)
1Q2010 = 5,160
2Q2010 = 1,220
3Q2010 = 5,693
4Q2010 = 13,393
1Q2011 = 22,247
2Q2011 = 18,046
3Q2011 = 32,401
4Q2011 = 35,282
1Q2012 = 11,930
2Q2012 = 11,857
3Q2012 = 15,796
4Q2012 = 15,294
1Q2013 = 26,413
2Q2013 = 27,406
3Q2013 = 30,134
4Q2013 = 29,236
1Q2014 = 39,511

As at 31-March-2014, cash hoard of UMS = SGD 39.511 million – which is at all-time-high

After paying out DPS of SGD 3.5 cents for final FY2013 dividend (SGD 12.04 million required), there would still be SGD 27.471 left - on post-bonus issues, this is equivalent to SGD 6.4 cent per share - enough to cover a total dividend of 6 cents per share for FY2014.

Can UMS afford to pay a DPS of 6 cents for FY2014?

Barring any M&A activities, the answer is yes - even if 2H2014 turns out to be weak – as UMS does not have to rely on FCF generated in 2Q, 3Q and 4Q 2014 towards 2014 dividend payment - as at 31-March-2014, it has already enough cash to cover that - FCF generated in 2Q, 3Q and 4Q 2014 could be used towards 2015 dividend payment – what an enviable position to be in !

With ex-bonus share price of 73 cents (pre-bonus price of 91 cents) and a DPS of 6 cents - the yield works out to be around 8.2% - which still look reasonably attractive to many, I would guess.

Moving forward, how high could the share price go?

It is anybody’s guess – but such positive risks do exist – share prices could potentially go higher from here if positive risks (such as if AMAT outsource more work to UMS, without margin squeeze) materialized.

That said, negative risks (such as manufacturing contract not renewed by AMAT at expiry) also exists which if materialized, could send the share price of UMS moving in the other direction.

In short, it cuts both ways.

(vested)

Innovation built on the Endura platform - if this new product could bring more revenue for AMAT, it would certainly be positive for UMS as UMS acts as the near-exclusive assembly and testing services provider for AMAT's Endura system.

(vested)
_______________________________________________________________________________________________________________________________________________

Applied Materials Introduces the Biggest Materials Change to Interconnect Technology in 15 Years

•New Endura® Volta™CVD system's unique cobalt processes ease interconnect bottlenecks to enable continued Moore's Law scaling
•Two breakthrough interconnect applications designed to support future generations of high-performance, low-power microchips
•Industry's first selective CVD metal process demonstrates Applied's leadership in precision materials engineering

SANTA CLARA, Calif., May 13, 2014 - Applied Materials, Inc. today announced its Applied Endura® Volta™ CVD Cobalt system, the only tool capable of encapsulating copper interconnects in logic chips beyond the 28nm node by depositing precise, thin cobalt films. The two enabling applications, a conformal cobalt liner and a selective cobalt capping layer, provide complete enclosure of the copper lines, improving reliability by an order of magnitude. The introduction of cobalt as a superior metal encapsulation film marks the most significant materials change to the interconnect in over 15 years.

"The reliability and performance of the wiring that connects the billions of transistors in a chip is critical to achieve high yields for device manufacturers. As wire dimensions shrink to keep pace with Moore's Law, interconnects are more prone to killer voids and electromigration failures," said Dr. Randhir Thakur, executive vice president and general manager of the Silicon Systems Group at Applied Materials. "The Endura Volta system builds on Applied's precision materials engineering leadership by delivering CVD*- based cobalt liner and selective cobalt capping films that overcome these yield-limiting issues to enable our customers to scale copper interconnects to beyond the 28nm node."

The Endura Volta CVD system, with its two new process steps, represents a major technology extension for copper interconnects beyond 28nm. The first step involves the deposition of a thin, conformal CVD cobalt liner to increase the gap fill window of copper in narrow interconnects. This process improves the performance and yield of the device by integrating the pre-clean, PVD*barrier, CVD cobalt liner and copper seed processes under ultra-high vacuum on the same platform.

The second step, a new "selective" CVD cobalt capping step, is deposited after CMP* to encapsulate the copper lines for enhanced reliability performance. Complete envelopment of copper lines with cobalt creates an engineered interface that demonstrates over 80x improvement in device reliability.

"Applied's unique CVD cobalt processes represent an innovative materials-enabled scaling solution," said Dr. Sundar Ramamurthy, vice president and general manager of Metal Deposition Products at Applied Materials. "It is deeply satisfying that these materials and process innovations in development for almost a decade are now being adopted by our customers for their high-performance mobile and server chips."

http://investors.appliedmaterials.com/ph...&highlight=

http://www.appliedmaterials.com/products...cvd-cobalt

http://www.appliedmaterials.com/files/pd...iefing.pdf

- Growth in chip sales as reported by IC Insights in 1Q2014 seems to be consistent with that reported by SIA (Semiconductor Industry Association) earlier.

- Meanwhile, Toshiba has announced that it will demolish its (Fab 2) for converting existing Toshiba and SanDisk 2D NAND capacity to 3D NAND - one simply has to keep up with the latest technology to be able to compete.
______________________________________________________________________________________________________________________________________________________

RESEARCH BULLETIN
MAY 14, 2014
BY IC INSIGHTS

- MediaTek, SK Hynix, AMD, and Micron Sales Surge in 1Q14!
Top 20 ranking shows that semiconductor industry company consolidation continues to accelerate.

- 1Q2014 Top 20 Semiconductors Sales Leaders

- 1Q2014 Top 20 Semiconductors Sales Leaders

http://www.icinsights.com/data/articles/...ts/684.pdf

____________________________________________________________________________________________________________________________________________________________

Toshiba to Replace Fab 2 at Yokkaichi Japan for Transition to 3D NAND Technology

Posted: May 14, 2014

http://www.nanowerk.com/nanotechnology-n...=35570.php