UMS Holdings

[Boon]

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)

"UMS revenue for the three months ended 31 March 2014 (“1Q2014”) increased by 23% to S$34.3 million, as compared to S$27.8 million in the previous corresponding quarter (“1Q2013”). This was mainly due to higher semiconductor component sales during 1Q2014"

I am wondering how could things turn around so quickly, but I would not be surprised at all if is the case, after all, it is the semiconductor industry we are talking about.

I thought UMS derived most if revenue from "system integration" work on Endura which carries a fixed margin according to Maybank Kim Eng.

Looking back, with the exception of 4Q2012, Gross Material Margin has been quite consistent and stable over the past 4 years.

(vested)

[yenyenpark]

2 years back, i was vested on another stock and got worried when the major shareholders sold off, and with company reporting losses.. but now the company have recovered, and I understand that I had missed the greatest opportunity...

[ethys]

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)

"UMS revenue for the three months ended 31 March 2014 (“1Q2014”) increased by 23% to S$34.3 million, as compared to S$27.8 million in the previous corresponding quarter (“1Q2013”). This was mainly due to higher semiconductor component sales during 1Q2014"

I am wondering how could things turn around so quickly, but I would not be surprised at all if is the case, after all, it is the semiconductor industry we are talking about.

I thought UMS derived most if revenue from "system integration" work on Endura which carries a fixed margin according to Maybank Kim Eng.

Looking back, with the exception of 4Q2012, Gross Material Margin has been quite consistent and stable over the past 4 years.

(vested)

This recommendation from DMG is very unprofessional. I am biased since I am vested but still it seems ridiculous to me that all of a sudden because the stock price drops they pretend that they actually know that the component supply chain for the semiconductor industry is now facing
downward pricing pressure. I would like to see one article saying this is the case... Also as Boon mentioned most of UMS revenue is derived from system integration" work on Endura which carries a fixed margin so it would not matter so much to UMS even if indeed the semiconductor industry is now facing downward pricing pressure.
The inside sales are obviously concerning but that would not justify such a downgrade in their TP especially that I doubt AMAT sales means they will treat UMS differently. Just downgrading when it falls and upgrading when it rises and trying to justifying what happened instead of predicting

[yenyenpark]

the vol very high, another rounds of selling from Andy and AM? ><"

[Boon]

UMC May revenues hit record

Josephine Lien, Taipei; Adam Hwang, DIGITIMES [Monday 9 June 2014]

Taiwan-based wafer foundry service provider United Microelectronics Corporation (UMC) on June 9 reported consolidated revenues of NT$11.930 billion (US$396 million) for May, a record monthly figure for the company with growth of 3.48% on month and of 9.82% on year, and the company had a sales total of NT$55.152 billion for January-May, an increase on year of 12.73%.

The revenue growth in May was due to large demand for not only advanced foundry processes but also mature processes and 8-inch ones, UMC pointed out.

UMC has made significant progress in improving yield rates for 28nm technology and has obtained additional orders from Qualcomm and Taiwan-based MediaTek, the company indicated. UMC has had 20 potential clients with more than 40 tape-out cases for 28nm technology and will adopt HKMG (high-k metal gate) process for 28nm technology to hike gross margins in the second half of 2014.

http://www.digitimes.com/news/a20140609VL202.html
______________________________________________________________________________________________________________

Taiwan bracing for strong economic performance in 2H14, says TSMC chairman

Josephine Lien, Taipei; Steve Shen, DIGITIMES [Friday 6 June 2014]

Taiwan's economic performance in the second half of 2014 will be better than that in the previous half year as well as a year earlier, according to Morris Chang, chairman of Taiwan Semiconductor Manufacturing Company (TSMC).

Additionally, the prospects for the semiconductor industry will be quite promising in the second half of 2014, Chang said, at a workshop on economic policy held in Taipei on June 5.

Chang also urged the Taiwan government to shift its economic development policy to focus on financial and service industries instead of manufacturing industries.

With the rising popularity of Internet of Things (IoT), companies like Google, Apple, Amazon, Cisco Systems, Alibaba, Tencent and Huawei which can integrate networking technologies and applications for connectivity will be the most profitable businesses in the future, the Chinese-language Economic Daily News (EDN) quoted Chang as saying.

http://www.digitimes.com/news/a20140606PD209.html

(vested)

[GreedandFear]

I agree with the various postings that the outlook for AMAT and UMS look good (and I am a bit perplexed by the negative sentiment from OSK's channel checks given that research by both Credit Suisse and JP Morgan is still positive on the sector) and I am not too concerned about AMAT's sale of shares (it gets them under the 5% disclosure threshold which is appealing to a big company for a stake that is completely immaterial to them) but I do think that the stock will be under pressure short term due to the significant sales by the CEO (even though he still retains a significant stake and it is quite logical for him to get some liquidity so that his wealth is not completely tied up in UMS). The latest sale (10MM shares) seemed much larger than what has been seen historically. Tactically, I have divested, hoping to reenter at a better level.

(Just divested)

[mslee888]

From Lim & Tan...

Applied Materials, the key customer of UMS (69.5 cents, up 2 cents)
sold 2,731,000 shares in the open market at an average price of 69.3
cents each, thereby reducing its stake in the company to 16,600,400
shares or 4.83%. Applied Materials had sold 193,000 shares last
week at 95 cents each, before UMS went ex bonus (1 for 4).
The latest sale is signifi cant as it will bring Applied Materials’ stake in
UMS below the 5% level which will not require the company to make
further announcements henceforth if they were to continue selling in
the open market.
Andy Luong, Founder and CEO of UMS continued to sell another
3mln shares at 67 cents each, reducing his stake in the company
to 75,607,727 shares or 21.99%. He had sold 10mln shares at 69.4
cents each last week. We also note that he and his family have been
consistent sellers of UMS in the past 2 years.
The persistent selling by both Applied Materials and Andy Luong
when the stock is still cum-dividend of 1 cent a share and yielding
8.8% (assuming the company can sustain last year’s 6 cents a share
dividend) is perplexing. This is especially so when the company is still
doing well with 1Q’14 profi t up 63% yoy to $8.3mln and management
is guiding for a robust performance going into 2Q’14.
Notwithstanding this, given its single customer exposure in Applied
Materials and persistent selling by both Applied Materials (going below
the 5% level) and Andy Luong (having sold 20mln shares this year),
investors should follow the smart money and “take profi t” as well.

[DP28]

I was told by a forbes-ranked wealthy guy before.. He had this saying to me that strike me hard till today.

"Technology stock.. You make money, you wont know why. You start to lose money, you too dont know why".

He told me about how technology landscape can change drastically against you if you dont understand the operating environment given its high touch business.

Just sharing..

[Boon]

This was an old clarification issued by UMS more that 2 years ago on CEO's share sale back then - I wonder if the company would issue a similar clarification this time if enough pressure has been "Applied" to them ?

http://umsgroup.listedcompany.com/newsro...B882.1.pdf

(vested)

[NTL]

This was an old clarification issued by UMS more that 2 years ago on CEO's share sale back then - I wonder if the company would issue a similar clarification this time if enough pressure has been "Applied" to them ?

http://umsgroup.listedcompany.com/newsro...B882.1.pdf

(vested)

In 2012, the price fell from 49c to 35c, close to 30% drop before the clarification was given. Will the price have to drop the same percentage before they decide to do so again?