UMS Holdings

[a74henry]

The good news is the technology sector is growing. New products ranging from watches (that does more than telling time) to spectacles (that allows websurfing). The key is adpatability of its manufacturing capability to remain relevant.

[l0nEr]

Applied Materials (AMAT) competitor...
Lam Research (LRCX +6.2%) makes new 52-week highs after beating FQ3 estimates, issuing strong guidance, and announcing a $250M buyback plan (good for buying 3.4% of shares at current levels). On its earnings call, Lam guided for FQ4 revenue of $945M-$1.005B and EPS of of $0.63-$0.77, above a consensus of $914.1M and $0.61. Foundry clients (such as big-spending TSMC) made up 56% of shipments, up from 51% in FQ2, and memory makers 31%, up from 20%. Chip equipment peers are up, taking heart in the numbers posted by Lam (and to a lesser extent) Mattson (MTSN +5.8% - earnings). AMAT +3.6%. KLAC +2.2%. ASML +2.5% (previous). CYMI +2%. RTEC +2.4%. UTEK +1.4%

seems like the entire semicon industry is guiding upwards... might be good for AMAT and hence UMS

[l0nEr]

Earnings are out... http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSQ1FY2013.pdf?openelement

• UMS’ 1Q2013 revenue increased 29% sequentially from 4Q2012 [But down year-on-year]
• Free cash flow generation increased 58% to S$6.4 million from 1Q2012
• Proposed interim dividend of 1.00 Singapore cent for this quarter

Looks pretty decent to me.
Still a positive outlook from the CEO + sequential revenue gain + stronger cash flow + repaid almost all their debts
Only issue is with the "Integrated system segment experienced a lower margin due to price discounts extended to the Group’s major customer. Furthermore, more subcontracting works resulting from labor shortage in Singapore had also affected the margin.". Just wondering if this issue is going to haunt them moving forward.
That said, so far i still dont see much growth intentions or prospects for the company. It still looks like the IMT acquisitions did nothing much to help.

comments?

[Nick]

UMS POSTS NET PROFIT OF S$5.2 MILLION; PROPOSED DIVIDEND OF 1.00 SINGAPORE CENT

Highlights
• UMS’ 1Q2013 revenue increased 29% sequentially from 4Q2012
• Free cash flow generation increased 58% to S$6.4 million from 1Q2012
• Proposed interim dividend of 1.00 Singapore cent for this quarter

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSQ1FY2013.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSPressRelease.pdf?openelement [Press Release]

1) The results are within expectations with semiconductor revenue recovering from the 4Q 2012 bottom. This is in line with the industry book to bill ratio compiled by SEMI which shows an uptrend in the ordering from chip makers. I expect this trend to continue in 2Q 2013 since Applied Materials remains bullish and there is greater capex needs from chip makers this year after a drop last year. It must be noted that this isn't a great quarter - it is just a rebound from the bottom. The traditional quarterly order bookings compiled by SEMI has generally exceeded US$3.5 billion in good quarters (2010 and 2011). In 4Q 2012, quarterly bookings fell to US$2.39 billion - levels not seen since 2H 2009. It has rebounded to US$3.29 billion in 1Q 2013 which explains the bullish outlook from equipment manufacturers like Applied Materials. As a result, I was not expecting a great or strong performance from UMS in this quarter and it certainly did not disappoint with a steady average result albeit a strong recovery from 4Q revenue. To put things in perspective - 2H 2012 was a terrible year and without IMT contribution, the profits will be significantly smaller.

2) The biggest issue in the 4Q 2012 result was the drastic drop in gross margins from its historical 50-55% to a mere 40%. From what I learned in the AGM, this was due to the price discount issued to the major customer for contract renewal and a few one off factors in 4Q and that margins would improve in 1Q. This has indeed transpired as 1Q 2013 gross margins has recovered to 48.5%. The shift towards manufacturing in Penang should improve the cost structure going forward and hopefully bring the GPM back to above 50%. This will come from lower labor cost, larger pool of workers and significantly cheaper utilities. Moreover, it enjoys tax-free pioneer status so it helps the bottom-line. I don't think this will be a thorny issue since the margin compression isn't as terrible as we thought it would be.

3) I remain extremely impressed with the cash generating ability of the Group as it is rare for a precision manufacturing company in a cyclical industry to consistently generate positive cash-flow. Since FY 2005, it has generated positive Net Operating Cash-Flow (OCF - Interest Exp - Lease Exp) annually of at least $16 million. The 1Q 2013 FCF has exceeded $6.4 million and can easily finance the 1 cent dividend which requires $3.4 million out-flow. I expect capex to remain low over the next couple of years barring a M&A since the bulk of the organic capex has already been incurred in 2006 - 2008 to acquire industrial buildings in Changi and Penang.

4) The Balance Sheet has strengthened significantly with net cash rising from $15.4 million a quarter ago to $26.4 million currently. The Group redeemed its US$3.50 million structured finance product and used its internal cash to reduce its debt significantly from $17 million to $2.0 million. This debt was originally used to purchase IMT Group in 1Q 2012 and I am glad that the Group has reduced their gearing substantially over the year while maintaining a high dividend payout structure which once again highlights the strong cash-flow the Group enjoys. Trade receivables has increased by $3 million and has been attributed to an increase in sales. Shareholder's equity has risen to $186 million or 54 cents per share. The Group also owns its freehold 480,000 sqft Penang facility and two leasehold industrial buildings in Changi North (recorded under PPE) so it shouldn't face rental cost pressures.

5) This will also mark the 14th consecutive quarter of 1 cent dividend payout. Considering the semiconductor industry is volatile, I am fairly impressed the Group has maintained its profitability over the years. The Management did commit itself to a dividend payout policy and I expect this to be maintained in 2013 barring unforeseen circumstances. The Group has paid a total of 18 cents dividend (including 1Q 13) since 4Q 2009.

6) The CEM division continues to be weak with sales plunging by 77% to $0.495 million due to weak orders in the O&G industry. I don't expect this division to be a major revenue generator in the Group since it is remains focused on the semiconductor industry where it enjoys higher margins.

7) Lastly, UMS shouldn't be confused as a 'safe' yield play. It is a cyclical company operating in an industry which faces volatile swings. It is difficult to predict anything past the next quarter - in 2012, the first half was strong but orders rapidly dried in 2H 2012 affecting UMS revenue. Moreover, it has one major customer (a major player in the industry) and hence faces concentration risk - granted this is both a good and bad thing but nonetheless, there are risks involved. We have already seen how the price discounts can affect the gross margins. The past diversification efforts has not worked out well and I don't expect CEM division to be a major player within the Group. The high payout policy may also curtail its potential for growth and acquiring new companies to diversify its product offerings in different industries.

In short, I think this is a fairly decent and expected result. Nothing great nor terrible. Shareholders will be pleased with the dividend and based on the closing price of 47.5 cents, it translates to a historic yield of 10.5%.

Comments are welcome.

(Vested)

[Musicwhiz]

7) Lastly, UMS shouldn't be confused as a 'safe' yield play. It is a cyclical company operating in an industry which faces volatile swings. It is difficult to predict anything past the next quarter - in 2012, the first half was strong but orders rapidly dried in 2H 2012 affecting UMS revenue. Moreover, it has one major customer (a major player in the industry) and hence faces concentration risk - granted this is both a good and bad thing but nonetheless, there are risks involved. We have already seen how the price discounts can affect the gross margins. The past diversification efforts has not worked out well and I don't expect CEM division to be a major player within the Group. The high payout policy may also curtail its potential for growth and acquiring new companies to diversify its product offerings in different industries.

In short, I think this is a fairly decent and expected result. Nothing great nor terrible. Shareholders will be pleased with the dividend and based on the closing price of 47.5 cents, it translates to a historic yield of 10.5%.

Thanks Nick for the point by point summary and analysis. Always a pleasure to read such well-structured analysis which covers not just the P&L, but also the BS and CFS.

On your last point 7, I wonder if you know which part of the cycle UMS is in and whether they are actually counter-cyclical? Reason I ask is because they have been consistently FCF +ve and also paying a 1c/share dividend for so many consecutive quarters. Hence, I get a sense that cyclicality may not have a major impact on the Company. What are your thoughts on this? Has the Company ever been "tested" in a bad macro environment or when demand has fallen off a cliff?

Next question would be - why would you want to own the Company if you feel it is cyclical and earnings are therefore not easy to predict? Does this still make UMS a value play - being defined as intrinsic value being higher than the market price?

Another major risk is that of customer concentration, as you have mentioned. How would UMS mitigate this risk? What impact do you anticipate from a material decline in its key customer? Has this happened before and what measures did the Company take to buffer their earnings/cash flows?

Finally, if the Company is indeed in a cyclical industry, why won't it retain more cash to buffer against bad times instead of maintaining a high dividend payout policy? Is the Company retaining enough for growth and expansion? Has capex traditionally been purely maintenance or a combination of both expansionary/acquisitive capex cum maintenance capex?

Thanks!

[greengiraffe]

UMS POSTS NET PROFIT OF S$5.2 MILLION; PROPOSED DIVIDEND OF 1.00 SINGAPORE CENT

Highlights
• UMS’ 1Q2013 revenue increased 29% sequentially from 4Q2012
• Free cash flow generation increased 58% to S$6.4 million from 1Q2012
• Proposed interim dividend of 1.00 Singapore cent for this quarter

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSQ1FY2013.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSPressRelease.pdf?openelement [Press Release]

1) The results are within expectations with semiconductor revenue recovering from the 4Q 2012 bottom. This is in line with the industry book to bill ratio compiled by SEMI which shows an uptrend in the ordering from chip makers. I expect this trend to continue in 2Q 2013 since Applied Materials remains bullish and there is greater capex needs from chip makers this year after a drop last year. It must be noted that this isn't a great quarter - it is just a rebound from the bottom. The traditional quarterly order bookings compiled by SEMI has generally exceeded US$3.5 billion in good quarters (2010 and 2011). In 4Q 2012, quarterly bookings fell to US$2.39 billion - levels not seen since 2H 2009. It has rebounded to US$3.29 billion in 1Q 2013 which explains the bullish outlook from equipment manufacturers like Applied Materials. As a result, I was not expecting a great or strong performance from UMS in this quarter and it certainly did not disappoint with a steady average result albeit a strong recovery from 4Q revenue. To put things in perspective - 2H 2012 was a terrible year and without IMT contribution, the profits will be significantly smaller.

2) The biggest issue in the 4Q 2012 result was the drastic drop in gross margins from its historical 50-55% to a mere 40%. From what I learned in the AGM, this was due to the price discount issued to the major customer for contract renewal and a few one off factors in 4Q and that margins would improve in 1Q. This has indeed transpired as 1Q 2013 gross margins has recovered to 48.5%. The shift towards manufacturing in Penang should improve the cost structure going forward and hopefully bring the GPM back to above 50%. This will come from lower labor cost, larger pool of workers and significantly cheaper utilities. Moreover, it enjoys tax-free pioneer status so it helps the bottom-line. I don't think this will be a thorny issue since the margin compression isn't as terrible as we thought it would be.

3) I remain extremely impressed with the cash generating ability of the Group as it is rare for a precision manufacturing company in a cyclical industry to consistently generate positive cash-flow. Since FY 2005, it has generated positive Net Operating Cash-Flow (OCF - Interest Exp - Lease Exp) annually of at least $16 million. The 1Q 2013 FCF has exceeded $6.4 million and can easily finance the 1 cent dividend which requires $3.4 million out-flow. I expect capex to remain low over the next couple of years barring a M&A since the bulk of the organic capex has already been incurred in 2006 - 2008 to acquire industrial buildings in Changi and Penang.

4) The Balance Sheet has strengthened significantly with net cash rising from $15.4 million a quarter ago to $26.4 million currently. The Group redeemed its US$3.50 million structured finance product and used its internal cash to reduce its debt significantly from $17 million to $2.0 million. This debt was originally used to purchase IMT Group in 1Q 2012 and I am glad that the Group has reduced their gearing substantially over the year while maintaining a high dividend payout structure which once again highlights the strong cash-flow the Group enjoys. Trade receivables has increased by $3 million and has been attributed to an increase in sales. Shareholder's equity has risen to $186 million or 54 cents per share. The Group also owns its freehold 480,000 sqft Penang facility and two leasehold industrial buildings in Changi North (recorded under PPE) so it shouldn't face rental cost pressures.

5) This will also mark the 14th consecutive quarter of 1 cent dividend payout. Considering the semiconductor industry is volatile, I am fairly impressed the Group has maintained its profitability over the years. The Management did commit itself to a dividend payout policy and I expect this to be maintained in 2013 barring unforeseen circumstances. The Group has paid a total of 18 cents dividend (including 1Q 13) since 4Q 2009.

6) The CEM division continues to be weak with sales plunging by 77% to $0.495 million due to weak orders in the O&G industry. I don't expect this division to be a major revenue generator in the Group since it is remains focused on the semiconductor industry where it enjoys higher margins.

7) Lastly, UMS shouldn't be confused as a 'safe' yield play. It is a cyclical company operating in an industry which faces volatile swings. It is difficult to predict anything past the next quarter - in 2012, the first half was strong but orders rapidly dried in 2H 2012 affecting UMS revenue. Moreover, it has one major customer (a major player in the industry) and hence faces concentration risk - granted this is both a good and bad thing but nonetheless, there are risks involved. We have already seen how the price discounts can affect the gross margins. The past diversification efforts has not worked out well and I don't expect CEM division to be a major player within the Group. The high payout policy may also curtail its potential for growth and acquiring new companies to diversify its product offerings in different industries.

In short, I think this is a fairly decent and expected result. Nothing great nor terrible. Shareholders will be pleased with the dividend and based on the closing price of 47.5 cents, it translates to a historic yield of 10.5%.

Comments are welcome.

(Vested)

Mate, well done. Luckily you are not a paid analyst as you wont be able to be so objective.

UMS is a high risks high return stock. To each its own, as long as you understand what you are into, then you can sleep peacefully at night.

Cheers
GG

[Nick]

On your last point 7, I wonder if you know which part of the cycle UMS is in and whether they are actually counter-cyclical? Reason I ask is because they have been consistently FCF +ve and also paying a 1c/share dividend for so many consecutive quarters. Hence, I get a sense that cyclicality may not have a major impact on the Company. What are your thoughts on this? Has the Company ever been "tested" in a bad macro environment or when demand has fallen off a cliff?

Hi Musicwhiz,

Always great to see your questions here !

UMS operates in a very volatile industry and this will be reflected in its numbers as being cyclical. Granted, we may think of cyclical industries as boom to bust sequences like the 7 year recession and 3 year boom shipping cycle. I would like to think it also includes industries where demand for its goods are extremely volatile and well in-tuned with the economic conditions so the revenue in that industry will zig zag terribly implying shorter cycles. In this industry, chip-makers like Intel or TSMC often spent heavily on new equipments to produce more chips efficiently or more advanced smaller chips. This is the capex which chip makers incur and the revenue which equipment manufacturers earn. The equipment manufacturing sector is dominated by a few American based players and one of the largest player is Applied Materials - customer concentration risk is inevitable. Since 2010, Applied Materials has started to outsource its operations to Asia (especially Singapore). UMS, is one of Applied Materials suppliers and they do the 'high end' system integration for the machine parts (hence the high margins). They have followed Applied to Asia so there was a shift of revenue mixture from USA to Singapore after 2010. The equipment manufacturing industry is cyclical as chip makers will not continually incur capex when demand for chips slow down. Personally, I view the industry as trending upwards over the past decade due to the huge demand for electronic products and smaller chips though the demand can be somewhat lumpy. We can see this lumpiness in UMS revenue recently - in 1Q 11, semiconductor revenue was a solid $32.8 million before dropping to $20.7 million in 3Q 11 and recovering to $34.6 million in 2Q 12 and plunging to $20.3 million in 4Q 12 and in 1Q 13, it rebounded slightly to $27.4 million.

I would consider FY 2009, 2H 11 and 2H 12 to be pretty bad times for UMS. In 2009, it reported losses (though cash-flow positive) as the semiconductor industry faced a contraction. Looking at the numbers published from SEMI, the equipment manufacturing sector order bookings in FY 2009 was US$6.08 billion as compared to US$11.17 billion in FY 2008 and its subsequent recovery in FY 2010 of US$18.45 billion. The FY 2010 figure is probably the strongest order ever recorded in a year and it is of no surprise that it was also UMS best year with record revenue generated. Unfortunately, since then, both years after (2011, 2012) suffered from the case of strong 1H and weak 2H due to poor economic conditions forcing chip makers to defer capex and order wins fell to US$15.8 billion and US$14.2 billion respectively.

In UMS case, I would think its strong operations enabling it to meet Applied Materials demand and quality is an important 'moat'. It has climbed the value chain in recent years and embarked on system integration since 2009 giving it more jobs. Its recent acquisition of IMT Group is meant to further complement its service offerings to Applied Materials. This has resulted in relatively strong margins due to the quality of their work and consistent cash-flow (no receivables issue). Even in the midst of the GFC, they could command gross margins of 62% in 2008 and 58% in 2009. I do not expect consistent result from UMS - I expect fairly stable EPS of 4-6 cents in normal times, > 7 cents in great times and loss making in terrible times. So far, it seems the normal times tends to dominate the cycle with short good and terrible times. This is just my expectation - I could be very wrong here !

Next question would be - why would you want to own the Company if you feel it is cyclical and earnings are therefore not easy to predict? Does this still make UMS a value play - being defined as intrinsic value being higher than the market price?

I wish to question the assumption that a 'value' purchase MUST have consistent earnings (with growth). I don't think it is necessary as long as the price has some value imbued in it - naturally, it entails higher risk as GreenGiraffe succinctly puts it and so I would demand higher returns. Note: I am not saying the current share price is a BUY. I could very well lose a lot in this investment if my analysis is wrong since it is cyclical. So that's a risk and I do understand where you are coming from.

UMS has been generating cash-flow consistently so that makes it a little easier to value. In terrible GFC period of 2008 and 2009, it generated operating cash-flow (including finance expenses) of $16.1 million and $18.8 million respectively. Even if we strip the finance lease income, the operating cash-flow was $13.3 million and $13.4 million respectively. The average operating cash-flow in FY 2010 - FY 2012 was $31.0 million or 9 cents per share. We know that it has been investing heavily in 2006 - 2008 to beef up its capabilities by purchasing industrial buildings in Changi and setting up its huge Penang facility from scratch. Yet, in this same period, it could still maintain its earnings, kept its balance sheet in net cash mode while significantly reducing its outstanding share float from a peak of 410 million to 343 million shares. Naturally, since late 2009, it has decided to channel the cash generated towards dividend payment. This isn't the hallmark of a typical boom to bust company.

Finally, if the Company is indeed in a cyclical industry, why won't it retain more cash to buffer against bad times instead of maintaining a high dividend payout policy? Is the Company retaining enough for growth and expansion? Has capex traditionally been purely maintenance or a combination of both expansionary/acquisitive capex cum maintenance capex?

I think the Management has been balancing this issue delicately. For instance, it purchased IMT Group in Feb 2012 for $28 million and it contributed $6 million to the Group bottom-line. It partially financed the acquisition with debt - in 1Q 2012, it had $28.8 million cash and $15.1 million debt. Four quarters later, it would have paid out 5 cents of dividends and redeemed its US$3.5 million structured deposit and yet, its cash is maintained at $28.4 million with debt significantly reduced to $2.0 million. I would actually consider this to be prudent and hence the payout ratio isn't as high as it would seem (though higher than the usual company in the tech sector). It survived GFC with $11.8 million net cash and currently it has built a net cash hoard exceeding $25 million. As such, I would think it has retained sufficient capital to buffer bad times. The bulk of the capex incurred previously was one-off since there is no need to develop another Penang facility or buy more industrial buildings. Replacing machines will be the key capex in the medium term but judging from the recent quarters, I think capex will continue to be low. Management did mention that capex is unlikely to be high this year since they incurred much of it a few years ago. Of course, nothing is certain and if there is a massively huge ramp up in demand, I can imagine expansion would curtail dividends going forward.

Personally, while it would be nice to create a second division catering to another industry like O&G or Solar, the management track record in diversifying has not been great. I guess when capacity is limited and you have a great customer providing nice margins, it makes little sense to still devote production lines to another customer. Previously, it tried to cater to the solar industry but the weak customer profiles made receivables an issue. In other words, diversification should result in the reduction of risk while maintaining returns - any other outcome, isn't really diversifying so I guess until the Management finds a job with similar returns, it makes little sense to expend capital on it. The acquisition of IMT Group would imply that the Management is more keen on building up its core competency than venturing into a new sector for now. Again, potential investors will have to decide whether is this the right approach.

In short, investors must recognize that the results will be lumpy and the dividends are by no means guaranteed. I would be surprised if they even paid a dividend in a traditional poor year. The lack of diversified product offerings is another element of risk that investors will have to bear. The past solid cash-flow generated are definitely not guaranteed to be continued in 2013 onwards. I like to think that is the reason why it has traded at 10 - 15% yield in the past 12 months. I try my best to be objective. Again, I wish to stress (to any reader) that I am not recommending a buy or sell here.

(Vested)

[Drizzt]

i think we all havent really see a really down cycle. the one where order to book is around 0.46

[Boon]

UMS POSTS NET PROFIT OF S$5.2 MILLION; PROPOSED DIVIDEND OF 1.00 SINGAPORE CENT

Highlights
• UMS’ 1Q2013 revenue increased 29% sequentially from 4Q2012
• Free cash flow generation increased 58% to S$6.4 million from 1Q2012
• Proposed interim dividend of 1.00 Singapore cent for this quarter

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSQ1FY2013.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...60020A8ED/$file/UMSPressRelease.pdf?openelement [Press Release]

1) The results are within expectations with semiconductor revenue recovering from the 4Q 2012 bottom. This is in line with the industry book to bill ratio compiled by SEMI which shows an uptrend in the ordering from chip makers. I expect this trend to continue in 2Q 2013 since Applied Materials remains bullish and there is greater capex needs from chip makers this year after a drop last year. It must be noted that this isn't a great quarter - it is just a rebound from the bottom. The traditional quarterly order bookings compiled by SEMI has generally exceeded US$3.5 billion in good quarters (2010 and 2011). In 4Q 2012, quarterly bookings fell to US$2.39 billion - levels not seen since 2H 2009. It has rebounded to US$3.29 billion in 1Q 2013 which explains the bullish outlook from equipment manufacturers like Applied Materials. As a result, I was not expecting a great or strong performance from UMS in this quarter and it certainly did not disappoint with a steady average result albeit a strong recovery from 4Q revenue. To put things in perspective - 2H 2012 was a terrible year and without IMT contribution, the profits will be significantly smaller.

2) The biggest issue in the 4Q 2012 result was the drastic drop in gross margins from its historical 50-55% to a mere 40%. From what I learned in the AGM, this was due to the price discount issued to the major customer for contract renewal and a few one off factors in 4Q and that margins would improve in 1Q. This has indeed transpired as 1Q 2013 gross margins has recovered to 48.5%. The shift towards manufacturing in Penang should improve the cost structure going forward and hopefully bring the GPM back to above 50%. This will come from lower labor cost, larger pool of workers and significantly cheaper utilities. Moreover, it enjoys tax-free pioneer status so it helps the bottom-line. I don't think this will be a thorny issue since the margin compression isn't as terrible as we thought it would be.

3) I remain extremely impressed with the cash generating ability of the Group as it is rare for a precision manufacturing company in a cyclical industry to consistently generate positive cash-flow. Since FY 2005, it has generated positive Net Operating Cash-Flow (OCF - Interest Exp - Lease Exp) annually of at least $16 million. The 1Q 2013 FCF has exceeded $6.4 million and can easily finance the 1 cent dividend which requires $3.4 million out-flow. I expect capex to remain low over the next couple of years barring a M&A since the bulk of the organic capex has already been incurred in 2006 - 2008 to acquire industrial buildings in Changi and Penang.

4) The Balance Sheet has strengthened significantly with net cash rising from $15.4 million a quarter ago to $26.4 million currently. The Group redeemed its US$3.50 million structured finance product and used its internal cash to reduce its debt significantly from $17 million to $2.0 million. This debt was originally used to purchase IMT Group in 1Q 2012 and I am glad that the Group has reduced their gearing substantially over the year while maintaining a high dividend payout structure which once again highlights the strong cash-flow the Group enjoys. Trade receivables has increased by $3 million and has been attributed to an increase in sales. Shareholder's equity has risen to $186 million or 54 cents per share. The Group also owns its freehold 480,000 sqft Penang facility and two leasehold industrial buildings in Changi North (recorded under PPE) so it shouldn't face rental cost pressures.

5) This will also mark the 14th consecutive quarter of 1 cent dividend payout. Considering the semiconductor industry is volatile, I am fairly impressed the Group has maintained its profitability over the years. The Management did commit itself to a dividend payout policy and I expect this to be maintained in 2013 barring unforeseen circumstances. The Group has paid a total of 18 cents dividend (including 1Q 13) since 4Q 2009.

6) The CEM division continues to be weak with sales plunging by 77% to $0.495 million due to weak orders in the O&G industry. I don't expect this division to be a major revenue generator in the Group since it is remains focused on the semiconductor industry where it enjoys higher margins.

7) Lastly, UMS shouldn't be confused as a 'safe' yield play. It is a cyclical company operating in an industry which faces volatile swings. It is difficult to predict anything past the next quarter - in 2012, the first half was strong but orders rapidly dried in 2H 2012 affecting UMS revenue. Moreover, it has one major customer (a major player in the industry) and hence faces concentration risk - granted this is both a good and bad thing but nonetheless, there are risks involved. We have already seen how the price discounts can affect the gross margins. The past diversification efforts has not worked out well and I don't expect CEM division to be a major player within the Group. The high payout policy may also curtail its potential for growth and acquiring new companies to diversify its product offerings in different industries.

In short, I think this is a fairly decent and expected result. Nothing great nor terrible. Shareholders will be pleased with the dividend and based on the closing price of 47.5 cents, it translates to a historic yield of 10.5%.

Comments are welcome.

(Vested)

Good work, Nick – Excellent piece of reporting !

One thing I am most pleased about on the 1Q2013 result is - the Net Profit Margin has bounced back to 18.8% - inching closer to the 20% mark – but to achieve this, I guess quarterly revenue would have to hit above SGD 30 million.

1Q2013 Results：

Revenue (SGD million）:
FY2012 =113.212
1Q2012 = 31.992
2Q2012 = 36.637
3Q2012 = 22.952
4Q2012 = 21.631
1Q2013 = 27.845

NPAT (SGD million) :
FY2012 =16.998
1Q2012 = 6.032
2Q2012 = 7.625
3Q2012 = 2.129
4Q2012 = 1.212
1Q2013 = 5.256

Gross Profit Margin :
FY2012 = 49%
1Q2012 = 52%
2Q2012 = 49%
3Q2012 = 54%
4Q2012 = 41%
1Q2013 = 48%

Net Profit Margin :
FY2012 = 15.01%
1Q2012 = 18.85%
2Q2012 = 20.81%
3Q2012 = 9.28%
4Q2012 = 5.60%
1Q2013 = 18.88%

(Vested)

[freedom]

recent quarter result also aided by foreign exchange gain, if I am not wrong. comparatively, in Q1 2012, there was foreign exchange loss.