10-06-2014, 02:43 PM
(10-06-2014, 01:38 PM)Nick Wrote: [ -> ]UMS Holding (SGD0.70) SELL (SGD0.47)
Large Stake Sales Prompt Downgrade
Amidst possibly falling margins and earnings, two of UMS’ most important stakeholders – its single main customer Applied Materials and CEO Mr Andy Luong – are selling their shares in the company. Downgrade to SELL, with a lower TP of SGD0.47 (from SGD0.70) based on a 7.2x FY14 P/E, which is its 3-year historical average.
Largest customer no longer a substantial shareholder. Applied Materials (AMAT US, NR), UMS’ single largest customer (accounting for around 80-90% of FY13 revenue), was reported to have sold 2.92m UMS shares at the average price of SGD0.70/share. It has also ceased to be a substantial shareholder as its stake has fallen to below 5%. This means that market will not be notified if it sells more shares in the future.
Founder/CEO pares stake. Mr Andy Luong, the founder and CEO of UMS, also recently hived off a large amount of his company shares. Although UMS booked a strong financial performance in the past few quarters, he sold an aggregate of 7m shares (prior to the bonus share issue last week) in March-April 2014 at SGD0.52/share. Perhaps what is most alarming is his recent sale of 13m UMS shares in the open market at an average of SGD0.69/share (Figure 1). As a result, his stake in the company has dropped to 22.0% YTD from 27.81%.
Cloudy outlook for margins and earnings. Channel checks show that the component supply chain for the semiconductor industry is facing downward pricing pressure. This, coupled with the negative signs stemming from share sales by UMS’ largest customer and CEO, leads us to believe that its FY13 net margin of 24% may not be sustainable in FY14, and its profitability could be vulnerable to downward pressure going forward. Despite UMS’ robust cash flow and dividends, the unexpected sale of its shares by key stakeholders and its lack of customer diversification has cast a pall over its outlook. As such, we lower our FY14 and FY15 estimates by 11.2% and 14.9% respectively. Downgrade to SELL with our new TP based on its historical average P/E instead of DCF, in view of the greater uncertainties ahead.
http://rhbosk.ap.bdvision.ipreo.com/NSig...f83f35.pdf
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"UMS revenue for the three months ended 31 March 2014 (“1Q2014”) increased by 23% to S$34.3 million, as compared to S$27.8 million in the previous corresponding quarter (“1Q2013”). This was mainly due to higher semiconductor component sales during 1Q2014"
I am wondering how could things turn around so quickly, but I would not be surprised at all if is the case, after all, it is the semiconductor industry we are talking about.
I thought UMS derived most if revenue from "system integration" work on Endura which carries a fixed margin according to Maybank Kim Eng.
Looking back, with the exception of 4Q2012, Gross Material Margin has been quite consistent and stable over the past 4 years.
(vested)