UMS Holdings, a precision engineering group specialising in the manufacturing of semiconductor products reported a drop in FY18 earnings. Full-year total revenue fell by 21 percent to $127.9 million, while, its net profit declined 17 percent to $43.1 million.

The Group’s total cash and cash equivalents in the balance sheet stood at $18.9 million as of 31 December 2018, a significant drop of approximately 68.2 percent $59.6 million last year. The Group’s total interest-bearing debt comprising of short-term bank borrowings, and long-term loan from related parties came in at $23.7 million (short-term bank borrowings of $20.3 million and long-term loan from related parties of $3.4 million).

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The Group’s net cash from operating activities remained steady YoY in FY18 at S$38.7 million compared to $39.9 million in FY17.

Key Operating Metric

FY14 FY15 FY16 FY17 FY18
31/12/14 31/12/15 31/12/16 31/12/17 31/12/18
Return on Assets (ROA) (%) 8.1 10.3 7.5 15.0 12.8
Return of Capital (ROC) (%) 8.9 11.0 8.1 16.6 13.9
Return on Equity (ROE) (%) 13.1 17.8 11.8 25.6 19.2
Gross Margin (%) 51.7 57.1 47.6 53.3 60.2
Net Income Margin (%) 22.7 30.9 21.7 32.0 33.7
Current Ratio 6.0 7.6 5.0 3.3 2.7

Based on the figures shown in the table, most of the return percentages, including the Return on Assets (ROA), Return on Capital (ROC), and Return on Equity (ROE) fell year-over-year (YoY) in FY18 compared to FY17. However, the gross margins and net income margins remained relatively stable, in the case of the net income margin where in FY18; the figure came in at 33.7 percent. As for the current ratio, it fell to 2.7 times in FY18 from 3.3 times in FY17.

On the debt ratios, the Group’s total debt-to-total equity (D/E) ratio remained quite steady in FY18, while the interest coverage ratio as measured by the EBITDA/Interest Expense fell slightly to 150.6 times in FY18 from 155.9 times in FY17. In summary, the Group’s overall gearing levels remained relatively healthy considering the low debt-to-equity ratios and high interest coverage ratio.

Stock Price Performance

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Source: Yahoo! Finance

The stock price, as expected, slipped on poor earnings announcement. However, it still registered much gain since the beginning of the year. At the current share price of $0.72, UMS is still in positive territory.

That said, the Group noted that the near-term outlook remains challenging due to the uncertainties in the order flows as a result of the ongoing US-China trade tensions which negatively impacted demand from semiconductor manufacturers.

However, on a longer-term, citing an outlook report from SEMI, the global association representing the electronics manufacturing supply chain, worldwide sales of new semiconductor manufacturing equipment are projected to contract slightly by 4.0 per cent in FY 2019, but are expected to rebound by 20.7 percent in 2020 to reach an all-time high of US$71.9 billion in 2020.

The Group has also proposed final dividend of two Singapore cents, along with a special dividend rate of one Singapore cent for FY18. Based on the data obtained from Yahoo! Finance, the Group’s annualised dividend yield stood around 6.3 percent. If approved at the next upcoming Annual General Meeting (AGM), the dividends will be paid out on 24 May 2019.

At an Enterprise Value (EV) to EBITDA multiple of 6.5 times, this is relatively cheaper than the behemoth of our local semiconductor industry Venture Corpoation, where EV/EBITD multiple is about 10 times, according to SGX Stockfacts.

Possible Strategy

UMS Holdings revenue and profit did suffer a major setback in FY18 with a double-digit drops on both top and bottom-lines, but given the longer-term outlook, beyond 2019, investors, who are believers of a potential global semiconductor equipment recovery might want to take a good look at the potential benefits from the recovery. However, they must probably be able to stomach the potential sharp swings in the overall industry in the near term.

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