SINGAPORE (May 21): CGS-CIMB Research is maintaining UMS Holdings at “reduce” with a lower target price of 55 cents.
This came after UMS’s 1Q19 core net profit came below expectation at 21%, below UMS’s 1Q average of 24% for the past nine years.
See: UMS posts 38% drop in 1Q earnings to $7 mil on lower revenue
In addition, gross material margin fell to 53% vs 57% in 1Q18 due to less favourable product mix. 2H19 earnings visibility also remains limited.
In a May 17 report, CGS-CIMB analyst William Tng expects FY19F to be a poor year for the semiconductor industry on the back of the cut in earnings on lower margin assumptions even though growth should expand over the longer term.
Tng’s view is supported by the 1Q19 World Fab Forecast report which predicts global fab equipment spending to decline 14% y-o-y 2019F before recovering.
Meanwhile, UMS is in the midst of a general offer for JEP shares. Given that JEP is already profitable, earnings contribution from JEP would increase, depending on how large a stake UMS ends up with when the offer closes.
Similarly, DBS Group Research is maintaining UMS at “fully valued” with a lower target price of $0.45 given weakening industry fundamentals in the near term.
In 1Q19, UMS reported 24% y-o-y lower revenue due to weaker semiconductor business. A change in product mix also led to weaker gross profit margins of 53%, down from 57% in 1Q18.
DBS analyst Ling Lee Keng says the semiconductor industry outlook continues to be challenging with uncertainty in customers’ order flows as a result of the ongoing China-US trade tensions.
Key customer Applied Materials (AMAT) is also guiding for a weaker outlook.
Consensus is expecting a 20-30% y-o-y drop in revenue and earnings.
As at 3.31pm, shares in UMS are down 1 cent at 61 cents or 11.1 times FY19F earnings of 5.48 cents.
