SINGAPORE (Feb 26): The Covid-19 outbreak has caused disruption in the operations of many electronics manufacturers, but UMS Holdings is seen to be able to brave through the storm.
For 4QFY2019 ended December, UMS reported earnings of $9.2 million, some 4% lower than earnings of $9.4 million a year ago. The 56% surge in revenue to $40.4 million was insufficient in combating the fall in the group’s overall gross material margins to 51.1% from 60.9% last year. As a result, full-year earnings fell 22% y-o-y to $33.2 million.
The fall in margins was due to a shift in product mix which saw a higher concentration in semiconductor system integrated sales. This had resulted in lower margins compared to the previous year’s mix which had a higher concentration of component sales.
But analysts are bullish, amid an expected recovery for the semiconductor industry. Maybank Kim Eng Research analyst Lai Gene Lih notes that the outlook remains robust and UMS, for one, remains poised to thrive on the recovery.
“Currently, management does not envisage major direct disruption as a result of Covid-19. For 1QFY2020, a lack of certain components may delay deliveries for 1-2 weeks, but management remains confident of being able to catch up on deliveries by the end of March,” shares Lai in a Tuesday report.
“Our thesis that UMS is a beneficiary of the upswing in semiconductor capex, which is still in the early stages, appears playing out,” says Lai, adding that the group’s full-year dividend of 4 cents was a “pleasant surprise” and had surpassed the brokerage’s forecast of 3.5 cents.
Ling Lee Keng, an analyst at DBS Group Research, says that while UMS could face supply chain disruptions, as well as manpower and logistical hurdles on the back of Covid-19, the group’s production is unlikely to be impacted as its manufacturing facilities are located mainly in Penang and Malaysia.
“Assuming the situation does not worsen from now, production is expected to catch up by 1QFY2020. Overall, we are still positive on the recovery of the semiconductor industry, driven by new technologies and 5G,” says Ling.
“UMS is working closely with its customers on mitigation measures to ensure minimal disruptions to its operations from the Covid-19 outbreak,” says CGS-CIMB lead analyst William Tng.
Tng adds that key risks that could derail the industry recovery include a lack of progress the US and China trade tensions, as well as a disruption to the global supply chain due to the virus.
Both Maybank and DBS are keeping their “buy” calls on UMS, with target prices of $1.13 and $1.12 respectively.
CGS-CIMB has an “add” call on the stock, an upgrade from the previous “hold”, with a target price of $1.08.
As at 4.34pm, shares in UMS Holdings are trading one cent lower, or down 1.04%, at 95.5 cents. This translates to a price-to-earnings (P/E) ratio of 11.1 times and a dividend yield of 4.6% for FY2020F according to Maybank valuations.
