■ 9M15 sales in line at 77% of our FY15 forecast; softer 4Q expected. 9M15 core net profit was also in line at 76% of our FY15 forecast.
■ 14.5% yoy improvement in bottomline due to stronger US$ and wider gross margin.
■ Gartner forecasts short-term sector weakness but good mid-to-long term prospects.
■ Maintains quarterly dividend of 1Sct/share.
■ Reiterate Add with raised TP of S$0.66 (based on 1.38x P/BV) as we roll forward to CY16.
3Q15 topline up 23.9% yoy, 9M15 topline rose 1.6% yoy
The recovery momentum from the second quarter continued into 3Q15, recording a 23.9% yoy growth which was driven by a stronger semiconductor segment. In terms of geographical breakdown, income contribution from Singapore (for its integrated system business which typically makes up c.50% of total sales) remained relatively stable, while revenue from the US rose 67% yoy due to higher component sales.
9M15 net profit helped by stronger US$
9M15 net profit improved 14.5% on a yoy basis thanks to the stronger US$, better gross margins (as a result of product mix changes) and lower depreciation expenses. We expect further cost savings of at least S$0.5m annually from the transfer of production to UMS’ Penang plant, as well as from some fully-depreciated fixed assets. Excluding the FX gains of S$3.0m, 9M15 core net profit inched up by 0.4% yoy, in line with our FY15 estimates at 76%.
Semiconductor outlook: look beyond short-term
Gartner recently revised its forecasts for semiconductor capital spending for 2015 from +2.5% to a 1% decline, and projected growth rates of -3.3%/+5.5% for 2016 and 2017 respectively. While orders from UMS’ major customer (accounts for >80% of total revenue) may have shown signs of tapering down, the company expects the business to stay stable in the mid-to-long term on the back of 4G/5G migration and continuous foundry technology upgrades.
Dividend payout tradition continues
UMS generated positive operating cashflow of S$4.4m and free cashflow of S$3.5m in 3Q15. Coupled with zero debt and minimal capex, it declared an interim DPS of 1 Scts in 3Q15, in line with its historical record and our expectations. Our annual forecasted DPS of 5 Scts translates to an attractive dividend yield of 9.8% (FY15-17).
We keep our forecasts unchanged, but our target price increases to S$0.66 as we roll forward to CY16 (still based on 1.38x PBV). Risks for the business include cyclical industry conditions and reliance on a single customer. Potential catalyst is development of new earnings stream. (Read Report)
Source : CIMB Research