UMS Results: 300% Growth! Are You Not Impressed?

Date: August 4, 2010

by Roger Tan, SIAS Research

380%! This is the year-on-year revenue growth rate achieved by UMS Holdings Limited (UMS) in its second quarter this year. The surge in revenue swung the company out of its net loss in the same period last year (of S$22m) to a handsome profit of S$7.4m. UMS’s CEO, Andy Luong, smiled when he announced the strong results at their earnings briefing yesterday.

In the first half of this year, UMS’s revenue totaled S$60m – 218% higher than its S$19m revenue in 1H09 – bringing its first half year’s profit to S$12m.

What does UMS do? The company is a leading manufacturer of high precision components for the semiconductor industry and its customers include Applied Materials and LAM Research – both are among the top 10 semiconductor equipment manufacturers globally.

In his presentation, Andy said that the semiconductor industry is experiencing a sharp recovery and is enjoying remarkable growth this year as the industry rides on the rising demand for chips.

His remark was supported by SEMI’s (a global industry association serving the manufacturing supply chains for the microelectronic, display and photovoltaic industries) findings that the first quarter orders for semiconductor equipment were over 5 times higher than the same period a year ago. Growth is expected to remain robust in the coming months.

Stanley Loh, CFO of UMS, then presented the financial performance for the second quarter and half year. Let me highlight a few important points.

Firstly, on a quarterly comparison, UMS’s revenue and profit growth were just as impressive. Between the first and second quarter of 2010, revenue growth was in excess of 42% while net profit leaped by 63%. UMS also managed to sustain strong growth for 4 consecutive quarters.

Second, UMS’s gearing is relatively low and as they have already made the necessary capital expenditure in 2009, gearing is expected to stay low for some time.

UMS has only utilized around 65% of its capacity. This means that it still has much room to grow without having to expand its capacity further.

Finally, UMS has a Net Asset Value (NAV) of S$0.49 at the end of 2H10 and Earnings per Share over 3.4cts for the half year. At the current price of S$0.42 (3 Aug 10), the company is trading at a Price‐to‐Book ratio of less than 1 and an annualized Price‐to‐Earnings ratio of around 6 times.

During the Q&A session, the management was asked if UMS’ demand will be affected in 2011 as some industry reports claimed that demand in 2011 will be weak for the semiconductor industry. Andy explained that UMS’s order book would only allow the management to gauge their performance for up to 2 quarters ahead. He is therefore unable to provide any insights into next year’s demand.

The management was also asked if UMS has an advantage in securing orders from Applied Materials because the latter is also a shareholder. Andy replied that Applied Materials does not favour any supplier that it has shareholdings in. Decisions to use a supplier are based on the merits of the vendor and not the relationship between the companies.

Finally, the management was asked if UMS is a potential takeover target. Andy smiled (again) and answered that takeovers are common in the industry and there will always be interested parties.

The company has declared an interim dividend payout of S$0.01 and is prepared to pay more dividends at the end of the year if their sterling financial performance continues. The management has expressed confidence that UMS will turn in a strong set of results at the end of 2010.

SIAS Research has initiated coverage on this company. Members can go to our website to check on our opinions.

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