SINGAPORE (Aug 14): CIMB is downgrading UMS Holdings to “hold” as it expects demand to moderate in 2H17.
Management says demand from a major customer of UMS is expected to moderate in 2H17. The renewed system integration contract announced earlier this year has a lower average selling price. UMS will mitigate this via efforts to increase production activities in lower-cost Penang where its new cleanroom and new system integration team will be ready in 3Q17.
UMS has also guided that its newly-acquired subsidiary Kalf Engineering will continue to pursue projects both in Singapore and overseas, and will make maiden but insignificant contributions to the group in FY17.
“We cut our FY17F EPS by 5.0% to factor in the guidance of moderating demand in 2H17. Our target price dips to $1.12, based on 2.39x P/BV,” says analyst William Tng in a report last Friday.
Semiconductor Equipment and Materials International (SEMI) expects Fab equipment industry spend to reach an all-time record of more than $49.4 billion in 2017, followed by another record of $53.2 billion in 2018.
Barring unforeseen circumstances, UMS’ board of directors remains optimistic the group will remain profitable in FY17F. A one-for-four bonus issue was also announced.
To recap, 2Q17 net profit of $11.5 million formed 29% of CIMB’s full-year forecast. 1H17 net profit of $22.7 million formed 56% of its full-year forecast, in line with the historical average of 53%. Gross material margin was 51% in 2Q17 and 1H17 due to higher sales proportion of Integrated Systems that command a lower margin compared to component sales. The balance sheet remained in a net cash position of $44.1 million at end 2Q17. A 1 cent DPS was declared.
As at 2.50pm, shares in UMS are up 4 cent at $1.12.
