UMS Holdings

[babyblue]

essentially this is a small company with zero market power. Being a contractor, it is on the tail end of the whip of the Amat's performance and in general the semiconductor industry. 


Semiconductor is a cyclical industry. Structurally it has to be like this because of strong competition, technology churn and most importantly long lead times for capacity increase to take effect ( managers plan to expand capacity 2 years in advanced based on market forecast now. when recession hits,  planned capacity has to go ahead. its like the shipping industry). 

Where are we in the cycle? are we nearer to the top? what comes after the top is reached? i think investors who chase this stock for yield may be sorely disappointed as the economy continues to slow down. 

not to mention this company faces a binary scenario as well. almost ALL of its revenue comes from one customer! this contract ends in 2017. will AMAT allow this small insignificant company to continue having such good margins, especially in view of the tough times ahead?? i will say low probability. AMAT will seek to maximise its profit. UMS does not have market power. It IS replacable. will Amat not extend the contract? the probability is there too, although i see it more likely that UMS settle for a much less lucrative contract.

[DCF]

Cash flow generation and dividend yield have been strength for a long time. I think this year, they demonstrated continuous cost improvement, and hence a 38% improvement in profit. So market has to given them some respect for not just a dividend play. Who knows how much more they can improve the cost structure? and how small cautious entry into aerospace can also bring additional upside

[Boon]

Cash flow generation and dividend yield have been strength for a long time. I think this year, they demonstrated continuous cost improvement, and hence a 38% improvement in profit. So market has to given them some respect for not just a dividend play. Who knows how much more they can improve the cost structure? and how small cautious entry into aerospace can also bring additional upside

Hi DCF,
Credit must be given to Andy and his team for their continuous effort to improve cost. But the 38% increase in FY2015 net profit was NOT entirely attributable to improvement in cost control alone. There were many other contributing factors………….Please refer to Chairman and CEO statement on page 2 & 3 of AR2015.
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FY2015 has been a very rewarding year for UMS. While the general business environment continued to be plagued by global uncertainties, UMS’ business remained stable. The Group’s FY2015 revenue edged up marginally to S$111.1 million compared to S$109.8 million in FY2014. However, despite the stable revenue, the Group is pleased to report that it has achieved a record-breaking net profit of S$34.3 million during the year, marking a 38% increase from S$24.9 million recorded in the previous year. This makes FY2015 the most profitable year in UMS’ history. This was attributable to favorable business conditions such as the strengthening of US dollar, lower raw material costs, the continuous practice of cost control and a better mix of products sold……………………………… 

In terms of segmental revenue contribution, UMS’ component sales for FY2015 was strong, outperforming that of integrated system sales. The consumables segment of its component business provided the Group with a recurring income, thereby giving some stability to its revenue stream.

As stated earlier, the Group’s net profit after tax performed tremendously well, rising to a record breaking S$34.3 million in FY2015. The Group’s gross material margin grew 6 percentage points to 60% compared to 54% a year ago. The appreciation of US dollar boosted the Group’s revenue while the weakened Malaysian Ringgit reduced the Group’s operational costs. Furthermore, lower raw material costs due to the weakening global economy also contributed to the Group’s margin growth.

The Group has always held a tight rein over its costs, as the management is committed to continuously improve the bottom line and maximize value for its shareholders. Towards the end of the year, the Group completed the planned transfer of a substantial amount of production activities to its Penang plant and vacated most of its leased space in 25 Changi North Rise, Changi North Industrial Estate. This allowed the Group to achieve cost savings in terms of lower energy costs and rental expenses……………..
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[DCF]

Thanks for pointing it out Boon.

It is correct that this year profit improvement was due to many other factors. My point was to highlight UMS strength beyond dividend play and cashflow engine, but also management ability to bring down cost.

[babyblue]

Thanks for pointing it out Boon.

It is correct that this year profit improvement was due to many other factors. My point was to highlight UMS strength beyond dividend play and cashflow engine, but also management ability to bring down cost.

well, cost management is always the lowest hanging fruit to increase profitability. beyond a certain point, it cannot be done.

I think in the case of ums, while its clear that the management is managing costs, it stands for very little. any good management worth its salt should manage costs well consistently. Put in another way, when doing DCF, for a management that can manage cost well, all we can do is be more sure of our forecast of margins moving forward / increase its margin by a few basis point ( but up to a limit). That doesnt change the present value of the company much.

As mentioned, more importantly, the company has been performing well really because the industry has been performing well, and by grace of AMAT, who awarded them the contract donkey years ago. The contract ends in 2017. We see world economy in general and semiconductor industry starting to slow. In addition AMAT of 2017, is a different AMAT from donkey years ago. For one, we know that they have gotten a much strong foothold, and the experience in the region. Second, they have emerged to be a top player. AMAT is in a stronger position while UMS is in a weaker one. Improbable that contract is as lucrative. Unless there are some other dealings we dont see

[Boon]

 
AMAT has won the Excellent Performance Award (for its PVD and PDC Equipment) from TSMC.
 
Interestingly, the theme of the forum was “Collaborate and Win Together”
 
http://www.tsmc.com/tsmcdotcom/PRListingNewsAction.do?action=detail&language=E&newsid=THHIGOST
 
Another strong reason favoring the renewal of UMS’ contract by AMAT, I reckon.
 
No one is contemplating on the possibility of AMAT giving more job to UMS ?  
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[weii]

Applied Materials, recognized as a 2016 World's Most Ethical Company values its suppliers and is likely, in my opinion, to offer UMS a fair deal in Year 2017 if UMS continues to meet its expectations.

Applied Materials, Inc. today announced it has been recognized as a 2016 World's Most Ethical Company® by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices.
"We strive to maintain a high ethical standard in every interaction with employees, customers, suppliers, competitors and the public," said Steve Adams, vice president, Ethics and Compliance at Applied Materials. "It is an honor to be recognized for fostering a culture of ethics and transparency throughout the company for the fifth consecutive year."

Applied Materials, Inc. presented seven companies (note: UMS is not one of these seven companies) with awards at its annual Executive Supplier Forum for helping meet the company's strategic business goals in 2013. Awards were given to suppliers for outstanding achievement in the areas of operational performance in quality, cost, delivery, and technology; demonstrated commitment to collaboration; and sustainable business practices. The forum represents the company's commitment to build strategic relationships with suppliers, communicate Applied's strategic direction and priorities, and foster supplier engagement.
"These high-caliber suppliers enable Applied Materials to quickly address dynamic market forces and increasing customer demands," said Marc Haugen, group vice president, Worldwide Operations and Supply Chain, Applied Materials. "It is critically important that we continue to partner together on our roadmaps in order to be successful and to drive innovation and operational excellence in all that we do."

In an old Business Times article dated 23 Jul 2012, Andy Luong mentioned the following:
There are three things to consider in order remain competitive: quality, price and speed of delivery.
First, ensure that the product we are delivering or the service that we are rendering is of the best quality. We should not settle for anything lesser. Customers will value our quality as this will become also the quality of their products that will be delivered to their end customers.
Second is to make sure that our price is competitive while ensuring we keep a reasonable profit. Lower profit per item can work to our benefit if more orders can be secured through achieving economies of scale.
Third is the speed of delivery of products/services to the customer. We believe that time is as precious as gold. We deliver products to our customers at earliest possible time. Make sure that there are no lag times.

References:
http://www.appliedmaterials.com/company/...al-company
http://www.appliedmaterials.com/company/...lier-forum
http://www.sg-electronics.com/news/82258...f-delivery

[CityFarmer]

well, cost management is always the lowest hanging fruit to increase profitability. beyond a certain point, it cannot be done.

There are truth, but not entirely for the statement. We need to differentiate the "quality" of the "cost management". There are external-driven i.e. lower material cost, and internal-driven i.e. innovative process-optimization. There are shorter-term i.e. retrenchment due to lower sales and longer-term one i.e. relocating to lower cost location.

Most of UMS cost reduction exercises, are belong to a good quality groups, IMO

(vested)

[zoolander123]

https://researchwise.dbsvresearch.com/Re...iigjkfdhjg

[Image: 0637603ebc9d951e9f378145bca6695e.jpg]


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[Boon]

The excellent performance award was given by TSMC, AMAT’s number ONE customer, in recognition for its PVD equipment.
 
Endura is the product platform for AMAT’s PVD equipment and it has been recognized as one of most successful metallization system in the history of the industry. 
 
http://www.slideshare.net/Applied_Materi...rch-endura
 
UMS is responsible for 80% of the system integration work of AMAT’s Endura system.
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