UMS Holdings Ltd -
Pop the champagne
9MFY13 core earnings were 93% of consensus and 90% of CIMB forecasts as the 3QFY13 slowdown was not as bad as expected. The fourth quarter looks bright and our 2 Scts DPS assumption will likely materialise. Visibility now extends into 1QFY14.
9MFY13 earnings exceeded consensus estimates as the 3QFY13 slowdown was milder than expected. We raise earnings by 7-20% as strong demand returns. Rolling over to CY14, our target price rises to S$0.65 (1.12x P/BV, the high end of its last earnings upturn cycle). We expect 2 Scts DPS for 4QFY13 - the full-year dividend yield is 9.1%. Maintain Outperform.
Strong 4Q ahead
3QFY13 earnings were driven by a better product mix and lower depreciation charge. For the fourth quarter, UMS expects growth to resume as demand from customers picks up strongly. The industry expert Gartner predicts that 2014 semiconductor capital spending will increase 14.1%, followed by 13.8% growth in 2015. The next cyclical decline will be a mild drop of 2.8% in 2016, followed by a return to growth in 2017. We believe the hurdle to clear is low as UMS reported 4QFY12 net profit of just S$1.2m. We believe UMS could see 27% qoq profit growth to S$6.1m in 4QFY13. UMS is optimistic that the strong demand will continue into 1QFY14.
On track for 2 Scts DPS
Backed by the upcoming and likely strong quarter and free cashflow of S$20m, we believe our assumption of 2 Scts DPS for 4QFY13 is realistic. The company has a track record of returning excess cash to shareholders. The FY14-15 dividend yields are an attractive 7.3% (4 Scts DPS) and even more attractive at 9.1% if the 5 Scts DPS payout continues.
Ready for additional orders
Major customer Applied Materials purchase of Tokyo Electron will convert the combined entity into the world's largest semiconductor equipment supplier. UMS could garner a larger share of business from this entity given its proven track record and ready capacity.
Publish date: 13/11/13