UMS Holdings

[Yoyo]

Mr Market expressed its displeasure with current price at 0.65 ex-bonus. The drop may not abate as trader with contra deal may have to unwind. While there is one definitely reason for insider buy, there are many reasons for insider selling. The presence of fear is evident, despite no evidence of business fundamental deterioration. Any brave souls dare to buy in such time.
Huge volumes are registered recently, while we know who are selling, wonder who is buying? Definitely not all are traders that buy.

[NTL]

Mr Market expressed its displeasure with current price at 0.65 ex-bonus. The drop may not abate as trader with contra deal may have to unwind. While there is one definitely reason for insider buy, there are many reasons for insider selling. The presence of fear is evident, despite no evidence of business fundamental deterioration. Any brave souls dare to buy in such time.
Huge volumes are registered recently, while we know who are selling, wonder who is buying? Definitely not all are traders that buy.

While there many reasons for insider sell, having 2 major shareholders, the CEO and the "single" customer, selling at the same time is really worrying. And it's not just snall sales, it's a few days of continuous selling. For me, I will sure not be buying until I am quite clear that the business is truly still intact.

[winterain]

For such cyclic business, the recovery has just started if u believe economic is recovering. Can see trend of high tech/semicon firms has hiring, investment, r&d plans in the next 3 years. I think 0.65 is a reasonable support to collect, esp for high yield portfolio.

(vested)

[Boon]

Both “insiders” have been pairing down their stakes in UMS “at the same time”- what would be the potential implications - Negative, neutral, or positive?

Naturally and understandably, one would incline to think on the negative side.

I have said this before, if something negative have had happen or is going to happen to UMS which both "insiders" knew about – the likelihood that both parties would team up together in pairing down their stakes, ahead of the market, to gain unfairly advantage, at the expense of other investors, would be extremely low – considering the “extra” amount that could be gained by AMAT is almost immaterial to AMAT - coupled with the fact that AMAT is considered one of the most ethical company in the world.

As for Andy, I don’t recall if he has had any bad track record on corporate governance issue during his time at UMS.

Based on my above arguments, there is no reason for me to lean towards any “negative implication” at all.

No doubt, non-renewal of manufacturing contract by AMAT at expiry has always been the biggest risk to UMS.

But I think the AMAT-UMS relationship goes back a long way - they had together developed integrated systems and expanded product portfolio during the financial crisis – since 2010, UMS has been able to enjoy the fruit of success from this “joint-development-efforts”.

How long would UMS be entitled to enjoy this “loyalty margin”? At least until expiry of manufacturing contract in 2017, if not longer, I would say.

Come 2017, if “cost” or “loyalty margin” is the issue, chances are “margin squeeze” would most likely be the outcome rather than “non-renewal-of-contract”, unless

1) If Andy has decided to call it a day at UMS, or
2) Endura has lost its relevance in the market.

(vested)

[yenyenpark]

there are 2 ways looking at them:

negative: Andy and AM no confident for short term future, encash their shares for short term gain due to price rally..

positive: Andy and AM would make more $$ from stock market prior ex-bonus (price was higher), but they didn't because they still want to entitle for bonus shares.. bonus share they got easily cover back those they sold in market..

today share price may reflect the news announced yesterday.. of course I don't like the way Andy selling off his share but again this only happened recent year.. may be he in urgent for some cash for other business?? AM also hold for many good years before recent sale..

[Tiggerbee]

Excerpts from Lim & Tan's daily report issued on Monday. This is an out dated post as news of AMAT selling 2731M shares was only disclosed yesterday evening.
http://www.remisiers.org/cms_images/rese...609_LT.pdf

Following UMS’ (67.5 cents, up 1.5 cents) major customer (Applied
Materials) open market sale of 193,000 shares at 95 cents (before the
stock went ex 1 for 4 bonus issue) each last week, reducing its stake
to 20,446,400 or 5.95% of the company, UMS’ founder and CEO Andy
Luong also sold 10mln shares in the open market at 69.39 cents each
(after the stock went ex-bonus), reducing his stake to 78,607,727
shares or 22.87% of the company.
While previous sales by Andy Luong did not negatively impact UMS’
share price due to its attractive dividend yield and 1 for 4 bonus issue,
we believe the latest open market sales by both its major customer
(Applied Materials) as well as its founder, CEO and single largest
shareholder will likely see weakness for the stock in the near term.
The stock is currently trading at 10x PE and 1.5x price to book, which
is above its historical average of 9x and 1.35x. If the company can
sustain last year’s 6 cents dividend a share this year, dividend yield is
an attractive 8.9%, so it begs the question of why is Applied Materials
and Andy Luong both selling shares in the open market at such an
attractive yield?
We would not take lightly such insider sales as these are the people
who knows the inside story of the company best.

[valuebuddies]

In my opinion, if something bad going to happen, the portion of shares sold by AMAT should be significant which is not the case. For CEO, he tends to sell regardless of whether it is good or bad time. So in short, it seems to be quite neutral and profit taking by 2 major shareholders seems more likely.

Vested and biased

[Boon]

In my opinion, if something bad going to happen, the portion of shares sold by AMAT should be significant which is not the case. For CEO, he tends to sell regardless of whether it is good or bad time. So in short, it seems to be quite neutral and profit taking by 2 major shareholders seems more likely.

Vested and biased

With its stake in UMS fallen below 5%, AMAT is no longer a SSH, no disclosure in its share dealing would be make again until it breaches ABOVE the 5% mark again.

(vested)

[Nick]

UMS Holding (SGD0.70) SELL (SGD0.47)

Large Stake Sales Prompt Downgrade

Amidst possibly falling margins and earnings, two of UMS’ most important stakeholders – its single main customer Applied Materials and CEO Mr Andy Luong – are selling their shares in the company. Downgrade to SELL, with a lower TP of SGD0.47 (from SGD0.70) based on a 7.2x FY14 P/E, which is its 3-year historical average.

Largest customer no longer a substantial shareholder. Applied Materials (AMAT US, NR), UMS’ single largest customer (accounting for around 80-90% of FY13 revenue), was reported to have sold 2.92m UMS shares at the average price of SGD0.70/share. It has also ceased to be a substantial shareholder as its stake has fallen to below 5%. This means that market will not be notified if it sells more shares in the future.

Founder/CEO pares stake. Mr Andy Luong, the founder and CEO of UMS, also recently hived off a large amount of his company shares. Although UMS booked a strong financial performance in the past few quarters, he sold an aggregate of 7m shares (prior to the bonus share issue last week) in March-April 2014 at SGD0.52/share. Perhaps what is most alarming is his recent sale of 13m UMS shares in the open market at an average of SGD0.69/share (Figure 1). As a result, his stake in the company has dropped to 22.0% YTD from 27.81%.

Cloudy outlook for margins and earnings. Channel checks show that the component supply chain for the semiconductor industry is facing downward pricing pressure. This, coupled with the negative signs stemming from share sales by UMS’ largest customer and CEO, leads us to believe that its FY13 net margin of 24% may not be sustainable in FY14, and its profitability could be vulnerable to downward pressure going forward. Despite UMS’ robust cash flow and dividends, the unexpected sale of its shares by key stakeholders and its lack of customer diversification has cast a pall over its outlook. As such, we lower our FY14 and FY15 estimates by 11.2% and 14.9% respectively. Downgrade to SELL with our new TP based on its historical average P/E instead of DCF, in view of the greater uncertainties ahead.

http://rhbosk.ap.bdvision.ipreo.com/NSig...f83f35.pdf

(Vested)

[Boon]

Has AMAT been giving "free lunch" to UMS, since 2010 ?

NPAT (SGD: million):
FY2005 = 11.1
FY2006 = 24.1 (UMS bought back 7,103,000 shares)
FY2007 = 12.1 (UMS bought back 9,551,000 shares)
FY2008 = 1.8 (UMS bought back 23,511,000 shares)
FY2009 = (24.3) Big Loss by UMS - (No share buy-back)
FY2010 = 28.7 (UMS bought back 9,979,000 shares); “co-development” efforts in system integration with AMAT during the financial crisis began paying off significantly。
FY2011 = 27.6
FY2012 = 17.0 (UMS bought IMT Group for SGD 28 million)
FY2013 = 28.9

DPS (SGD Cents)
FY2005 = 1.10
FY2006 = 1.25 (UMS bought back 7,103,000 shares)
FY2007 = 2.35 (UMS bought back 9,551,000 shares)
FY2008 = 0.50 (UMS bought back 23,511,000 shares)
FY2009 = 1.00 (managed to pay dividend despite suffering big losses)
FY2010 = 5.00 (UMS bought back 9,979,000 shares)
FY2011 = 6.00
FY2012 = 5.00 (UMS bought IMT Group for SGD 28 million)
FY2013 = 6.50
1Q2014= 1.00 (effective dividend payout has increase 25%, taking bonus issue into consideration)

Cash and cash equivalent (SGD million)
FY2005 = 17.2 (borrowing = 12.1)
FY2006 = 37.2 (borrowing = 6.8) ; (UMS bought back 7,103,000 shares)
FY2007 = 21.4 (borrowing = 0.3) ; (UMS bought back 9,551,000 shares)
FY2008 = 19.1 (borrowing = 7.3) ; (UMS bought back 23,511,000 shares)
FY2009 = 24.7 (borrowing = 9.3)
FY2010 = 20.5 (borrowing = 7.3) ; (UMS bought back 9,979,000 shares)
FY2011 = 37.9 (borrowing = 2.6)
FY2012 = 32.5 (borrowing = 17.2) ; (UMS bought IMT Group for SGD 28 million)
FY2013 = 29.2 (Debt Free)
1Q2014= 39.5 (Debt Free)

Comments:
1) For the period under review, with the exception of 2009, UMS has been making profits every year.
2) UMS managed to spend considerable amount of money on share buy-back even during the “not-so-good” years.
3) UMS managed to pay dividend every year even in crisis year 2009 when it suffered big losses.
4) Dividend payout over 5 year-period (2005 to 2009, inclusive) amount to SGD 6.2 cents per share.
5) Dividend payout over the next 4 years (2010 to 2013, inclusive) amount to SGD 22.5 cents per share. On top of this, UMS spent SGD 28 million in 2012 in acquiring the IMT group – this work out to be another SGD 8.1 cents per share.
6) UMS paid out a yearly record dividend of SGD 6.5 cents for FY2013.
7) Despite of all of the above payouts - its cash position reached a record high as at 31-03-2014 - and it is debt free.
8) As a result, 1Q2014 dividend has been increased 25% effectively - taking bonus issue into consideration.
9) The fundamentals of UMS from 2010 onwards had improved significantly compared to previous years – the Management had attributed this to “two-years process development efforts” spent during financial crisis with major customer to develop integrated systems, expanding product portfolio began paying off significantly.
10) As a result of improved macro environment and upturn in the semiconductor industry, 4Q2013 & 1Q2014 results had improved significantly compared to the same period last year – cash level has reached record high - hence the record dividend payment of SGD 6.5 cents per share for FY2013 and 25% increase in dividend payment for 1Q2014.
11) The ability of UMS in generating FCF is simply amazing ; if it could generate the same amount of cash (dividends + IMT acquisition cost) over the next 4 years (2014 to 2017, inclusive) as it did over the last 4 years (2010 to 2013, inclusive), this would translate into SGD 30.6 cents (pre-bonus-basis) or SGD 24.5 cents (post-bonus basis) without factoring in the potential benefits of semiconductor bull cycle over the next few years.
12) The fundamentals of UMS have gone from strength to strength over the years - but all these have been happening amid increasing dependency on one-customer-one-industry.
13) Has AMAT been giving “free lunch” to UMS since 2010? Well, there is no reason to believe so as "there is no free lunch in this world", so they say – UMS earned it through its “co-development efforts” with AMAT, IMO.
14) How much longer would UMS get to enjoy the “loyalty margin” from its “co-development efforts” with AMAT ? I hope it is perpetual but I don’t know - but that should be the most critical question to focus on !

(vested)