UMS looks promising stock.
Good profit margin of 25%. 1Q204 revenue increased by 23% and Net profit increased by 63%. Company debt free and generating positive cash flow, increaseing over each quarter.
UMS share price had already increased by 60% but is still trading at less than 10x PE which is still cheap and good dividend yield. I agree with you Lotustpsll, there is still upside on the price upside.
My view is UMS is a promising stock but I don't understand the nature of semiconductor business. There can be possible shifts in demand pattern due to the unique nature of semiconductors and related products. The other reason is founder sold of 6 millions shares. Maybe someone can share more on the nature of UMS semiconductor business.
IDEA OF THE DAY
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.
Insider selling is not a favourable development. The sale by AMAT is not material, hence I will not be concerned. Sale by Andy is significant but such disposals had happened in the past and was explained for personal reasons. I do note that his earlier disposals usually arose from exercise of options and in the latest instance from bonus issue. Andy still has > 20% holding in UMS.
Market is taking this calmly and may even have discounted the news. Closed higher today at 69.5 cents.
I checked the the revenue and profitability data for the past 10 quarters and came away with this finding - growth in sales and profitability is clearly evident in last 2 Qs and this is a positive indicator.
From management outlook, Q2 results are expected to be robust. Industry prognosis for 2015 is favourable and there is favourable rating on AMAT.
Overall, I still remain upbeat on UMS.
Yeng - you may wish to review the sales and profitability numbers and form your views.
"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 profit” as well".
Share price fell more than 10% yesterday on high volume. As there is no further disclosure of disposal by Andy Luong (CEO), likely the heavy selling came from AMAT. Based on my rough estimate AMAT may still hold about 8 to 10 million shares to dispose.
The actions by AMAT could be explained as disposal of non core asset as it has a 5 year business contract with UMS, expiring in 2017. However, this persistent selling by Andy, especially when the share price is rallying, is creating serious unease on shareholders and a negative perception of this CEO.
For proper corporate governance, UMS should issue a statement explaining the sharp fall in share price in UMS. Otherwise, SGX should ask the company to explain.
UMS has earlier issued an upbeat statement on 2Q performance as follows - “Following the good set of financial performance registered in 1Q2014, the Group
expects its core front-end semiconductor equipment business to remain healthy in the second quarter of 2014”. I will hope that this forward statement holds true and if it falls short the credibility of UMS is over and the shareholders may have a case for misrepresentation.
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