UMS: 3Q Stronger Than Expected
(BUY, SGD0.58, TP: SGD0.71)
UMS’ 3Q13 results were above expectations, with PATAMI soaring 126% y-o-y to SGD4.8m on SGD25.4m of revenue (+11% y-o-y). In view of the stronger-than-expected 3Q as well as UMS’ favourable outlook, we raise our FY13 and FY14 estimates by 24% and 17% respectively. Maintain BUY, with our DCF-based TP unchanged at SGD0.71 (WACC: 11.9%, terminal growth: 0%).
Earnings beat estimates as expenses drop. In line with expectations, UMS’ revenue declined 23% q-o-q as global spending on wafer manufacturing equipment slowed down after two consecutive quarters of strong demand. However, as depreciation expenses were 36% lower y-o-y (since some of its assets are fully depreciated) while forex losses slid 75% y-o-y in view of the absence of an inventory write-off, the group delivered net profits that beat our estimates.
Industry outlook to pick up again. Although worldwide semiconductor players’ book-to-bill ratio softened in 3Q (July: 1.00, Aug: 0.98, Sept: 0.97), we expect it to pick up in 4Q. According to Gartner, while worldwide spending for semiconductor equipment will decline by 8.5% to USD34.6bn in 2013, growth will resume from 2014 onwards, with spending rising by 14.9% and 19.6% respectively for the next two years.
Management confident on year ahead. UMS is witnessing stronger orders and higher demand from customers as it moves further into 4Q13. The favourable industry outlook for FY14 and beyond also bodes well for the company. Management is optimistic that the company will have a better year ahead.
Major customer will be dominant player. The acquisition of Tokyo Electron (8035 JP, NR) by UMS’ largest customer, Applied Materials (AMAT US, NR) – contributing close to 90% of the company’s revenue - will make it a dominant industry player, which will in turn benefit its suppliers. While we do not expect UMS to gain from this immediately, we see it as the sole Singapore proxy to this landscape-changing event.
Publish date: 18/11/13